Best Ways to Prepare Your Finances for Holiday Spending

1. Make a Shopping List (and Check It Twice)

Making a list can help you organize your holiday shopping as well as your holiday finances. Sure, you can go the paper-and-pen route to develop your list, but apps offer some elf-like assistance. Among them are Gift List Diary, GiftPlanner, Giftster and Santa's Bag.

Regardless of how you assemble that list, figure out who the gift recipients will be and how much you feel comfortable spending on each person. You could set a $50 limit per relative and $25 limit per friend, for example.

Compiling this list can help you come up with an overall holiday budget—and sticking to the list can help you avoid overspending. In a 2019 Experian survey, 60% of Americans surveyed acknowledged overspending during the holiday season.

2. Count Your Cash

Look at the balances in your checking and savings accounts—including any funds you've been setting aside specifically for holiday purchases—and add up how much cash you have available for holiday spending. Coupled with making a shopping list, reviewing your cash situation will help determine how much money you'll have to earmark for the holiday season. If possible, stash your available cash in a dedicated holiday fund and don't spend more than what's in the fund.

3. Be Realistic

Did you lose your job during the pandemic and are still unemployed? Were you laid off but are now back at work? Either way, you may want to conserve cash this holiday season. Relatives and friends should understand if you find yourself in a tough situation and can't be as generous as you normally are. You might even choose to step away from some gift-giving traditions altogether, such as the annual gift exchange at work.

If you're struggling financially or even if you're on solid footing, don't feel guilty if you need to spend less than you might have in previous years. A simple gesture such as a card with a small box of treats will still be appreciated. Or consider DIY gifts. A DIY item lends a personal touch and can save you money. It could be a tin of chocolate fudge, a homemade candle, a handcrafted necklace, a unique wooden toy or even a "gift certificate" for a home-cooked meal.

4. Squeeze Extra Money From Your Budget

Searching for ways to cut costs so you can put more money for holiday shopping? Here are several tips:

• Scrutinize how much you're spending on food. Can you cut back on dining out? Can you reduce your grocery bill? You can apply these savings to holiday expenses.
• Consider cutting the cord. Maybe you've signed up for several streaming services and you're still paying for cable TV. Can you carve out more money for holiday shopping by getting rid of cable or a couple of the streaming services you're not using much?
• Delay purchases for yourself. Chances are, you can put off buying a new pair of shoes or a new TV until after the holidays.
• Kick the coffee shop habit. You may love picking up a couple of lattes each workday at your favorite coffee shop, but those cups can add up quickly. Consider making coffee at home, at least until the holidays are over, to decrease the budget for your daily brew.
• Sign up for shopping apps. These apps may let you collect money on everyday purchases. They include Capital One Shopping, Checkout 51, Ibotta and Rakuten.

5. Do the Credit Card Math

Ahead of online and in-store shopping excursions, decide how much you can afford to put on your credit cards without sinking into holiday debt.

If you rely on holiday shopping to rake in credit card rewards, go back to how much cash on hand you have as well as the extra rewards you'll accumulate at the end of the buying season (and in January). This enables you to calculate how much you can safely charge to maximize rewards without erasing their value by paying interest on purchases.

6. Maximize Your Credit Card Rewards

If you've been stockpiling your earned points or cash back, you could slash at least some of your holiday budget by cashing in those rewards. Rewards often can be used for gift cards that you could then use to buy gifts—or just give the gift cards, since you know that's what the kids probably want anyway. (Just keep in mind that gift cards tend to offer less value when redeeming reward points.) Or get cash back and use that to pay for purchases. Just be sure you request your rewards in time to use them for the holidays.

If you're hunting for a new rewards card, you might look at:

7. Consider an Intro 0% APR Offer

Consider applying for a credit card with a 0% intro APR on purchases. If you already were looking at a new card and would like to earn some rewards and an intro bonus, you might apply for a card that not only has the features you want but also offers promotional interest-free financing for your holiday purchases. This is recommended only if you're sure you can pay off the balance before the intro APR period ends.

The Wells Fargo Active Cash^® Card (Rates & Fees) is another worthy contender in this category. It offers a 0% intro APR for 12 months from account opening on purchases; after that, the APR shifts to 19.74%, 24.74%, or 29.74% Variable APR. Balance transfers made within 120 days qualify for the intro rate and fee of 3% then a balance transfer fee of up to 5% thereafter, with a minimum fee of $5 in either case. The card also offers unlimited 2% cash back rewards on purchases and a $200 introductory cash rewards bonus after spending $500 on purchases in the first 3 months.

The Bottom Line

To make sure your holidays are full of cheer, plan your spending now, just as you plan what'll be served at the holiday dinner table. From creating a shopping list to taking your cash situation into account to contemplating 0% intro APR credit card offers, put a bow on your holiday budget now so you can avoid a New Year's debt hangover. If your holiday spending plans include applying for a new credit card, visit Experian CreditMatch™ to check out offers based on your credit profile.