Avoiding Christmas Debt

Holiday sales often pop up before the snow starts to fall, causing some people to pull out their credit cards before their winter jackets. This Holiday season, the National Retail Federation has estimated a 2.3 per cent increase in sales from 2009, a promising forecast for recession-bitten retailers, but troubling news for cash-strapped shoppers.

“Some people are telling us that they’re still paying off last Christmas’s debt,” says Bruce Cran, president of the Consumers Association of Canada. “And they don’t intend to repeat the same mistakes this year.”

According to an October study by Environics Research Group for MasterCard Canada, 48 per cent of Canadians go over their Holiday budget and that’s if they set one at all—one in five Canadians admit they don’t budget for the Holidays. Less budgeting means more Christmas stress, but having a proper plan can make for a merrier season. “When I sit down with clients to do their cash flow and planning for the year, I always ask them how much they’re planning on spending during the Holiday season,” says Jeanette Brox, a certified financial planner with Investor’s Group for the past 19 years. It’s what Brox does with her clients’ ballpark figures that save them from stressing over money.

She begins by decreasing her clients’ estimations by 30 per cent. Then, she calculates how much they must save per month to reach that amount—but not before making the monthly goal a range so that her clients “don’t feel defeated.”

By saving and maybe even shopping year-round, Brox says cash will more likely be used to buy gifts than credit cards. “We should know the perils of using credit cards,” she says. “People need to be aware [that] not planning and later relying on credit cards will end up costing them double in the long-run.” The MasterCard Canada study suggests relying on one credit card for all purchases because it’s easier to track expenses than using cash. “I don’t think [not using credit cards] is the way to go,” says Cran. “People should seek value and be aware of what they’re doing—if they’re going to go into debt, it should be on a planned basis rather than free spending.”

But the MasterCard Canada research shows 37 per cent of Canadians don’t plan a holiday budget until the end of the year and by then, it may be too late. “In order not to get blindsided [by costs], you must plan for the Holidays on a monthly basis. Pay cash, set a budget and set limits,” says Brox.

To set a budget with a certified financial planner in your area, visit the Financial Planning Standards Council at www.fpsc.ca