How to keep holiday spending within reasonable bounds

PERSONAL FINANCE

December 07, 2003|By EILEEN AMBROSE

EVEN THOSE who head into the holidays with the best intentions not to overspend sometimes can't resist overindulging.

Once in the mall, they get caught up in holiday spirit and the emotion of buying for loved ones, said credit counselors who usually see their business pick up in the New Year when bills roll in. Or, they get so irritated by the crush of fellow shoppers that they spend whatever it takes to escape the crowd.

This season, despite signs that the economy is picking up, consumers want to restrain spending more than usual, according to a recent survey of more than 1,000 adults by the Consumer Federation of America and Credit Union National Association. Half of respondents said they would spend the same this holiday as they did a year ago. But 34 percent said they would spend less, compared with 21 percent last year.

To Bill Hampel, the credit union association's chief economist, the survey suggests that consumers are less convinced that an economic recovery is at hand and they are worried about their debt.

Knowing how easy it is for good intentions to go awry, experts suggest some simple steps to keep from overspending:

Plan ahead. "The way to spend the most is not to think about what you are going to buy, go to the mall with a credit card with a $7,000 credit limit and start spending," said Stephen Brobeck, executive director of the Consumer Federation.

Before leaving the house, decide how much you can afford to spend, not only on gifts but other holiday items, such as cards, postage and wrapping paper. Then make a list of the people on your gift list, how much you will spend on each and gift ideas for every person. This reduces impulse purchases.

Some advise putting the list away for a day. When you come back to it with fresh eyes, you might see items to delete, such as the gift for the co-worker who never remembers your name.

Don't step into a store without first doing some comparison shopping through newspaper ads and the Internet, experts said. And don't procrastinate. The more time you have to shop, the less likely you'll end up at the last minute grabbing whatever is left on the shelves no matter the cost.

Paper or plastic? Paying with cash is an easy way to avoid spending more than you have, Brobeck said. If you're worried about carrying too much cash around, use a check, he said.

Or, use a debit card that offers the convenience of a credit card but takes money directly out of your bank account, so you're not paying interest.

If you prefer credit cards, take no more than two with you shopping so it's easier to track spending, said Mike Kidwell, co-founder of Myvesta.org, a debt manager in Rockville.

Also, before using a card that you might carry a balance on, call the card company and ask for a lower interest rate, he said. Many card companies will lower rates for good customers.

Beware of credit offers. Some retailers allow customers to take home a big-ticket item immediately and pay for it in interest-free installments over six months, Kidwell said. Read the fine print, he warned.

"If you take more than six months to pay off that product, you're charged interest on the original purchase price, not the remaining balance at the end of six months," he said.

Also, avoid offers from your card issuer to skip one month's payment during the holidays, Kidwell said. Even if you're not making a payment, you're still accruing interest, he said.

Forgo offers to sign up for a department store charge card and get a one-time discount on purchases, experts said.

Department store cards often carry high interest rates, and if you don't pay off the balance monthly, you can end up owing more in interest than you saved by getting the card, said Patricia Lynch, a credit counselor with Credit Counselors of Virginia and Southeast Maryland.

Plus, too many credit cards in your name can negatively affect your credit score, which creditors use to decide whether to extend credit and what interest rate to charge, experts said.

Draw names. Many families keep costs and shopping hassles down by drawing names out of a hat. You buy one gift for the person whose name you picked.

Set a price limit, too, that fits everyone's budget, experts said.

Time over money. Giving your time can be more valuable than a present you purchased, experts said. For example, you can provide a service, such as running errands, for someone who can't do those chores for themselves, said Connie Barnett, an educator with the Maryland Cooperative Extension in Dorchester County.

Barnett used to clean a friend's house as a gift. "She hated to clean her house and I thought, `Great, I'll come over once a year and clean her house for her,' " she said.

Children, too, can make coupons for grandparents, promising to cut their grass or wash their car, experts said.

Those with a talent for crafts or cooking can make homemade gifts, experts said.

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