Apparently, all the media is beating the drum about the high costs of vacation-related goods and services.
It is as it should be. After all, giving consumers an idea of what their holiday budget faces in December is very helpful, especially as the cost of goods rises in a highly inflationary economy.
What is less apparent in the public arena is the painful impact of high holiday prices on individuals and on households as a whole.
When airline prices rise 42.9% at the end of 2022, as shown in a new Bankrate study, or when the cost of shipping a gift increases by 13.9% or the cost of gasoline increases by 15% are not just abstract numbers that economists need to think about.
These are real numbers that can mean the difference between paying the electric bill or not getting decent medical treatment for a household member after an injury or illness, among other financial realities.
The real impact of overspending during the holidays
Common sense says that adding additional costs to a household’s budget disrupts that budget. So what does exorbitant holiday spending — especially with high inflation prices in its year’s mix — do to a household’s budget?
A lot, say financial experts – and not in a good way.
“If you overspend, you’re more likely to be in debt — especially credit card debt,” Achieve’s Vice President Tanya Peterson said. “One result is that you end up paying a lot more than the purchase price for what you bought.”
Consider what happens if you have $3,000 in credit card debt with an 18% interest rate.
“A standard 3% minimum payment would be $90 per month,” Peterson noted. “Paying only the minimum (which will decrease over time) would cost you $2,698.44 in interest and take almost 16 years to pay off. That means you’ll pay almost twice as much for what you bought in the first place.
It’s just to start. Peterson lists additional downsides to overspending on vacations:
• You lose the chance to do something good with the money you pay to the issuer of the credit card you are interested in.
“If your credit card charges 18% interest and you pay off the balance, you are guaranteed to avoid losing 18% – which is actually an 18% return,” she said.
• If you are unable to pay your credit card balance in full each payment period, interest will continue to accrue.
“If you’re still charging purchases to the credit card, you’ll fall behind even further,” Peterson said.
• If you have credit card debt, your credit score may drop because your usage percentage will increase.
For example, if the sum of your credit card limits is $10,000 and your total credit card balance is $3,500, this is 35% usage (i.e. i.e. the percentage of your available credit that you are using).
“Credit card usage can have a big influence on your credit score, so you want to keep your credit card balances and usage low,” Peterson added.
Tips for staying trouble-free while on vacation
The good news? Vacation overspending can be mitigated if you put in the effort. Start this process with these key action steps to improve the budget.
Take advantage of coupons and discounts. It’s no secret that the key to shopping for holiday gifts is to make sure you’re getting the best price. There are many effective and clever ways to do this.
“Take a few extra minutes to search for the item at its lowest price,” said TopCashback consumer credit expert Rebecca Gramuglia. “From there, overlay any applicable coupons and promotions.”
To do this, holiday shoppers can take advantage of a free cashback site, like TopCashback, which guarantees the highest percentage of your money back on qualifying purchases from over 7,000 retailers.
Stick to your budget. Save money by being upfront with family members about your vacation budget.
“Be honest with your loved ones and don’t overspend on vacation fun,” Gramuglia advised. “Budgeting is important, especially if you’re shopping for friends, family or significant others. This way, you’re all on the same page and won’t feel like you have to spend too much. “
This is especially the case with family gifts. “Try to make a bigger, more singular gift for everyone – like an experience,” Gramuglia added. “Memories are probably what they will remember the most. Find great deals on sites like Groupon. You can even layer these offers with credit card rewards/cashback offers.
Have a dedicated payment account for personal purchases. Before embarking on any gift shopping, open a checking or savings account dedicated to your holiday expenses to more easily manage your personal shopping budget.
“This method is useful because when the account is empty, you have a clear limit on your spending,” said Thomas Racca, chief financial officer of Navy Federal Credit Union. “Remember that the New Year is just around the corner. Use your account to create a shopping list for the New Year and be sure to start saving in January next year to minimize similar experiences for next vacation.
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