Six Months to Christmas – How to Save Money to Avoid Holiday Debt

See how to save money on holiday shopping by building up savings in advance rather than relying on credit-card borrowing.
Financial Expert
Managing Editor

woman christmas savingIt’s June. The days are long and the weather is warm. That makes it the perfect time to talk about holiday shopping.

After all, with six months to go before Christmas, this may be your best opportunity to break the cycle of ever-increasing holiday debt. If you find yourself running up a hard-to-manage level of debt during the holiday shopping season every year, you have plenty of company. However, that should come as no comfort because ever-climbing levels of debt have become a lingering problem for American consumers.

The alternative is to plan early so you can save up rather than borrow for holiday gifts. After all, if you are like most Americans you are going to have to sacrifice at some point to afford your holiday shopping. You can do it either by saving in advance or by paying off credit card debt after the holidays, but saving in advance puts you in control and is much cheaper in the long run.

Holiday debt lingers well into the new year

When looked at 50 years of credit-card-balance history from the Federal Reserve, a clear and disturbing pattern appeared.

Credit-card borrowing tends to accelerate in November and peak in December. Then, Americans end up spending the first three months of the subsequent new year trying to pay down their credit-card debt.

The following shows the average change in credit-card balances by month over the past 50 years. In this instance, negative numbers are good – they mean balances are declining as people pay off their debt. Positive numbers show months where credit-card debt is typically rising, through a combination of additional borrowing and interest charges.

Month Average change in credit card debt, in millions of $

























The general trend of borrowing around the holidays and repaying after the new year may sound familiar, but there are two disturbing things about these numbers:

  1. While the holidays may come once a year, the sacrifice of paying for it continues through the first three months of the new year.
  2. That sacrifice doesn’t really pay off because debt levels continue to increase. The amount of repayment that goes on in January, February and March does not match the amount of borrowing that goes on in November and December, not to mention the continued borrowing that goes on in the remaining months.

>> How long could it take to pay off your credit card? Try our credit-card-payoff calculator

How to save money for holiday shopping

The debt hangover caused by holiday shopping means that increasingly more of the money American have is going toward credit-card interest rather than gifts for their loved ones. On the other hand, if you make some budget sacrifices before the holidays rather than after, it can give you the opportunity to save money in advance so you can earn interest rather than pay it.

Here are some tips on how to save money for Christmas shopping by starting early:

1. Start with a holiday budget so you know what your target is

This will set a tone for a disciplined approach to holiday shopping. Having a budget will help you figure out how much you’ll have to save week by week in order to be ready for holiday shopping, and will set limits to help you avoid over-spending when the time comes.

2. Once you pay off last year’s credit-card debt, direct those payments into savings instead

If you are like most Americans, you began the new year by making extra credit-card payments to pay down last year’s holiday-shopping debt. Next time, though, once you reach the point where you don’t have to make such large credit-card payments, start directing a similar amount of money to savings. This will feel the same in terms of your month-to-month household budget, but will allow you to start building savings for the next holiday season.

3. Consider a short-term CD for early holiday savings

If you are able to accumulate some savings early enough, consider putting it in a short-term CD to earn extra interest. Depending on how early you start saving, a 3-month or 6-month CD could allow you to earn some extra yield and still have your money become available in time for holiday shopping.

4. No matter what type of holiday savings account you get, shop for the best rate

Whether it’s a savings account or a CD, don’t just accept your current bank’s offering. If you shop around, there is a good chance you can find a significantly better rate. Just consider that an early holiday present to yourself.

The holidays should be a joyous time but often involve a certain amount of stress. Paying for your Christmas shopping out of savings rather than by borrowing can take some of that stress out of the season.

More resources on how to save money for the holidays:

Budgeting tips: 6 mistakes to avoid

Rising Interest Rates: Consumers Face Unprecedented Risk

The Reason You Should Shop for the Best Rates

Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).