How to stay out of debt during the holidays

By Pamela Yip - 12/20/2008

To say budgeting is important this holiday season is an understatement.

The economy is reeling, taking with it thousands of jobs. That means every

dollar spent has to count more than ever. The first step, experts say, is to be upfront with your family about the finances, but don't quash all your children's

holiday hopes.

CHARGE AHEAD

WITH CASH ONLY

n Set a dollar amount for each holiday spending

category by looking at how much you spent last year.

n Cash is king now, so limit your use of credit cards.

n Determine what you can afford by how much actual money — not plastic money — you can spend toward the holidays.

n If you must charge, don't charge more than you can pay off in the first three months of next year, said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

n Think about the total cost of what you're buying, including any interest

payments, not just the short-term cost.

n Also, be careful of offerings from retailers that let you buy something on credit and not have to pay finance charges until early next year. When they say, "No finance charges until February," the interest typically accumulates the whole time. That's a good deal only if you pay off the bill before the due date.

n One way to avoid

holiday credit card debt is if you see something you want, ask the retailer whether it has layaway, which is making a comeback because of the tight credit environment.

n Layaway lets you put a purchase aside without

having to pay for it in full upfront. You make payments over time for the items you've reserved and receive your product once your order is paid in full. But understand the terms and conditions, and fees.

MAKE A LIST,

CHECK IT TWICE

n Keeping track of your spending will keep you from going over the edge during the holidays.

n Keep a laser-sharp focus on your shopping goals. "When you go to the mall, act as though you're on a reconnaissance mission," Cunningham said. "Get in and get out."

n Avoid impulse buying. Make a list before going to the mall. It will help you avoid impulse purchases.

n This year, making

memories instead of debt should be the mantra for cash-strapped families. Consider handmade gifts, which will carry more

meaning than store-bought presents.

n For consumers who have been laid off: "I'm

begging those who have lost their jobs to not live off credit cards, and this will have to include Christmas," Cunningham said. "People are well-meaning. They think things will get better tomorrow. But in this

economy, tomorrow may be very far off."