Christmas is a wonderful time of the year. It consists of: celebrating with friends and family, festive surroundings, multiple holiday feasts, parties, touching and fun gifts for loved ones, and sacred moments and fellowship among parishioners. For some, the holidays can be such a rich experience that they wish they could carry the spirit of Christmas throughout their year. Unfortunately, the very act of celebrating, if done irresponsibly, can end holiday cheer by the first of January.

How Did I Get Here Again?

We say it every year: “How in the world did we spend that much on the holidays? Surely, we will do better next year.” However, the cycle sadly repeats itself.

Since Christmas comes at the same time every year, it is somewhat surprising that we consistently fail to budget for it. The National Retail Federation estimates that Americans spend an estimated $832 on average for gifts, food, and decorations each Christmas. Nothing can kill your holiday buzz faster than to be still paying for Christmas-related expenses into February. During a time of increased unemployment and underemployment, many are trying to reconcile celebrating with decreased available funds. While most people, except for young children, appreciate that Christmas is not about gifts or spending a ton on entertainment, it can still be a challenge for some not to place expenditures on credit cards.

While seemingly innocent, this behavior can have very dangerous consequences. Irresponsible credit card spending is akin to a chronic and deadly disease…financially-speaking. Here’s why.

You Spend More

The average credit card balance in America is nearly $10,700 ($200 monthly) with an interest rate in the mid to high teens. Thus, if that entire balance is not paid off, you will incur interest payments. That means that good deal you found for 10% off no longer looks so great when you are paying a 17% interest premium.

However, suppose you are among the approximate 60% of credit card users who pay their bills off in full each month. Well, recent research indicates that you are still paying too much compared to non-credit card users. Numerous studies have repeatedly demonstrated that consumers who regularly use plastic for their purchases spend between 12-50% more (depending on the venue) than their cash-paying counterparts.

This is caused by a phenomenon known as the pain of paying cash. Research shows that when one has to part with cash, there is mental pain that he goes through that serves as a deterrent against spending. Consequently, he spends less to minimize the pain. However, if he put that same expense on a credit card, he would have delayed that pain until he paid his credit card balance. Thus, he would actually spend more because there is a disconnect between buying something and the pain of paying for it.

Moreover, there is another reason to spend cash now instead of later: DEALS!!!! You will be surprised by some of the deals you will find from private sellers and businesses alike if you pay with cash. For instance, I bought my first car as a teenager and performed the negotiation alone. Because I had cash on hand, I was able to get a gently used car from the dealer with a sweet 40% discount. All they cared about was the greenbacks that I had access to. I have also negotiated better rates from plumbers by just paying with cash rather than credit. If you have reasonable terms and cash on hand, that in itself is unique leverage that may help you gain the advantage in a negotiation.

You May be Making an Arrogant Assumption

By utilizing debt to pay for Christmas, you are obligating future income that isn’t guaranteed. That’s the last thing you want to do, even in the name of holiday cheer. Think about it: downsizing is so rampant, and hiring freezes are the norm. If one is not financially independent, or at the very least solvent (he can meet all expenses and has substantial money left over), it may be time to make some painful decisions temporarily regarding the holiday budget. This isn’t to stir up fear as it is to say that your financial well-being is not only important but it is perhaps the best gift that you can give your family this season.

Remember, family sickness or job loss could occur overnight and without provocation, and a great business opportunity could be available tomorrow. It is prudent to make sure you are ready.

Unlock Your Creativity

Just because you choose to limit holiday spending to what you can pay for now in cash doesn’t necessary mean that you can’t have fun this season, even if your budget is limited. Here are some ideas to decrease the expenses without diminishing the fun.

• Instead of hosting a big holiday dinner where you furnish everything, consider having guest bring their favorite dishes. Alternatively, maybe it is time to do holiday dinners at their homes?
• Be clear with family, friends, and coworkers that you are setting limits on gift-giving this year. For example, if you are trying to get out of debt, you may opt to only buy gifts for very little children and even keep those gifts below a preset price point. You could also draw names and buy a gift for just one adult person instead of buying gifts for everyone. Perhaps, you can purchase a book that changed your life in bulk from a wholesale distributor. This works as long as you think your recipients will enjoy it.
• Consider frugal activities for family outings as well. For instance, you could volunteer to help a charity during this time, which would cost nothing, keep everyone occupied, and do a public good.

The point is not to be cheap but to factor in the costs of celebrating, your budget, your values, and your overall financial well-being into your spending decisions. Keep in mind some of the most touching gifts are those that are creative and thoughtful. Cost barely even factors into the equation. That’s something we can all celebrate!