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4 ways to avoid racking up debt this holiday season

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Many shoppers are going into this holiday season haunted by the decisions of Christmas past. About 35 million Americans are still paying off credit card debt from the 2018 holidays, according to new data from WalletHub, and an estimated 1 in 5 people will still be paying off this year's bills in February 2020 or beyond.

Consider the following strategies to help you pay down your current debts and avoid racking up new balances.

Get smart about your spending

When you're budgeting for the holiday season, make sure you're factoring in how much you plan to spend.

Start by making a list of everyone you plan to give a gift to, but don't stop there. Get detailed with your list and note how much you'd like to spend on each person. If you plan to travel, host a holiday party, send out holiday cards, or decorate your home and simply get a tree, make a note of all of those expenses, too — they add up quickly.

If you haven't been putting aside money over the course of the year to cover holiday expenses, Kelly Smith of FreedominaBudget.com suggests cutting back on your everyday spending where you can.

"Sit down and see how much money you do have," says Smith. "Say you want to spend $600 [on holiday expenses], but you only have $400 available to you. Say, 'OK, let's cut $100 from groceries and $100 from eating out. Now we can do it.'"

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There are other avenues you can take to cover your holiday costs: Consider picking up a seasonal job at the mall or a side hustle like gift wrapping.

You can also cash in any unused credit card rewards, since many people have points and miles sitting around that they've forgotten about. Even at the low end of the valuation range (1 cent per point/mile), the average frequent flyer account balance is worth about $341 and the average hotel points balance equals approximately $229, while those credit card rewards average about $159, according to a 2019 study from Bankrate.

Read more: 4 simple ways to keep your holiday spending in check

Take advantage of store card benefits

If you plan to do most of your holiday shopping at a favorite retailer, getting its store card could score you extra deals. But store credit cards carry some of the highest interest rates around, so it's crucial to keep your spending to what you can afford to pay off in full each month.

Used wisely, sign-up discounts for store cards can lower the price of your holiday gifts. They may also give you the option of a low- or no-interest financing deal for bigger items to help you spread out the cost of the purchase and make payments that are more manageable.

"Five percent back is really what I see as the best ongoing reward, and a bunch of retailers have it on their cards," says Ted Rossman, industry analyst at Creditcards.com. "That's actually better than you can get on a general-purpose card."

Read more: Store credit card rates average 26% — why it can still make sense to use one

Say you want to spend $600 [on holiday expenses], but you only have $400 available to you. Say, ‘OK, let’s cut $100 from groceries and $100 from eating out. Now we can do it.'
Kelly Smith
Personal Finance and Lifestyle Blogger

Split up your payments

"Buy now, pay later services" like Afterpay, Klarna, and Splitit let you spread out your payments for a single purchase into installments over time. Unlike traditional credit cards, these alternative payment methods don't come with high interest rates — and there's a finite end date to finish your payments. Plus, you don't need an established credit history to be eligible.

These "buy now, pay later" methods have caught on with a number of popular retailers like Madewell, Urban Outfitters, DSW, and more. Be aware that these services won't help build up your credit history and could result in some late fees, though. Afterpay, for instance, charges a late fee of up to $8. The total of the late fees are capped at 25% of the original order.

As long as you make every payment on time, you should be able to avoid any extra penalties and still buy the gifts your family members will love.

Read more: What to know before opting to 'buy now, pay later' this holiday season

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Make your own presents

One way to avoid racking up any holiday debt is to be strategic about how you're spending the money you do have. The holidays are all about the spirit of giving, and that means you don't have to overspend to show your loved ones you care about them.

Erica Domesek, DIY expert and author of the book "P.S. - I Made This," says the perfect gift doesn't always have to be store-bought. DIY gifts are affordable and have the added bonus of showing the recipient that you took the time and care to make them something personal.

You don't have to be crafty to DIY this holiday season, either: Homemade gifts can be as simple as a hot chocolate kit, or a nice picture frame with your favorite photo of you and the recipient.

"It doesn't have to be fancy and over the top, it just shows that you're thinking of them and it's a thoughtful gesture," says Domesek.

Read more: 7 creative, affordable DIY gifts for everyone on your list

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