Holiday spending can lead to holiday debt

Published: Friday, Dec. 9 2011 6:00 p.m. MST

In this Dec. 23, 2008 file photo, two women head for the subway with their purchases after shopping in New York with one day remaining in the holiday shopping season. (Kathy Willens, file, Associated Press) In this Dec. 23, 2008 file photo, two women head for the subway with their purchases after shopping in New York with one day remaining in the holiday shopping season. (Kathy Willens, file, Associated Press)

SALT LAKE CITY — Holiday shopping so far this year has resulted in record-setting U.S. retail sales as bargain hunters nationwide have chased after super-saver holiday deals.

And all that expense can lead to some heavy-duty post-holiday debt if not managed properly, according to financial advisers and analysts.

The four-day period between Thanksgiving and Sunday saw U.S. consumer spending of $54.2 billion — a 16 percent increase over last year. Similar results came out of Cyber Monday, with online sales climbing 18 percent over 2010 — both record-setting levels for consumer spending.

The National Retail Federation reported that shoppers spent an average of $398.62 over the Thanksgiving weekend — up from $365.34 last year. Online sales on Black Friday jumped 26 percent to $816 million and 18 percent to $479 million on Thanksgiving Day, according to Reston, Va.-based research firm ComScore.

Last year, the typical American spent an average of $690 on holiday spending. The NRF found that more than half of the average consumer’s entire holiday budget — $393.55 — was spent on gifts for family members, with video game systems, jewelry, electronics and vacations among the most popular items.

Food was the second highest holiday-related cost at $86.32, followed by gifts for friends at $71.35 and decorations at $41.51.

There are strategies that can help families and individuals from falling prey to the holiday spending trap.

Establish a guideline of what you'd like to spend in advance and stay within those parameters, advised Craig Israelsen, an associate professor at BYU who teaches personal and family finance.

"If you plan for it and it fits into your budget, then you can spend it without guilt," Israelsen said. "At some level, a budget has to be quantitative, and it has to be written down. To the extent that we plan what we’re going to spend within the confines of (the holiday) budget, we've created a (feasible financial plan)."

A local economic analyst said keeping close track of spending could prevent the potential pitfall of running up massive credit card debt that can be especially costly if not managed correctly.

"Debt makes sense for longer-term investments — like education or housing or businesses," said Pam Perlich, senior research economist with the Bureau of Economic and Business Research at the University of Utah. "(But) it doesn't make a lot of sense to use debt to buy something that is here today and gone tomorrow. It's just not a good idea."

The U.S. Commerce Department said consumer spending — which accounts for about 70 percent of the nation's economy — grew at an annual rate of 2.3 percent during the third quarter, the fastest pace of 2011.

Meanwhile, the national savings rate declined, suggesting that some consumers used their nest eggs to pay for their increased spending. However, in October, consumer spending rose less than forecast as Americans used the largest gain in incomes in seven months to rebuild savings.

Household debt in the U.S. declined by 0.6 percent in the third quarter as mortgage balances shrank, according to a survey from the Federal Reserve Bank of New York.

Preston Cochrane, president and chief executive officer at AAA Fair Credit Foundation in Salt Lake City, said consumers should take advantage of available resources to help them avoid holiday debt hangover.

Cochrane said a great deal of helpful information is online at www.utahsaves.org. Utah Saves is a coalition of nonprofit, corporate and government groups that offer information and advice — mostly free — for those who want to learn to manage their finances.

"If you can save money and everything is going to debt, you're always going to be living paycheck to paycheck," Cochrane said. "How do you deal with holiday debt? Primarily, it's having a financial plan and sticking to it." 


Create a budget and stick to it — Set a dollar amount based on what you can afford this holiday season considering your current savings, income and other expenses. Be sure to include a $20 to $100 cushion for unexpected expenses.

Make a list — Write down the names of the people you plan to buy gifts for and how much you can afford to spend on each person. Don't forget to save some of your budget for expenses other than gifts, including wrapping paper, cards and postage.

Use credit wisely — Your credit card balance shouldn't be a complete surprise when you open your statement in January. Take only the credit cards you need when holiday shopping, and try to use the card with the lowest interest rate.

Save your receipts — Keep track of your expenses and add them up weekly to be sure you are sticking to your budget. If you’re getting close to your spending limit, reevaluate your list and consider making homemade gifts to keep expenses down.

Shop around — Start your holiday shopping early to give yourself time to comparison shop. Take time to do some research before you hit the stores by going online or looking at your local newspaper circulars.

Pay bills on time — Avoid missing the due date for your credit card payments. Even if you can only pay the minimum, pay it on time.

Source: Zions Bank

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