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Ward off the ghost of holiday debt Add to ...

The season of giving is a time for holiday spirit and generosity, but also one of frenetic shopping and extraordinary spending that can send unprepared shoppers far into the red — and not the jolly, festive shade.



"Our debt levels are still very high, historically, and it means people going into the holiday shopping season should be very aware of how much they're spending and how they're spending it," says Tom Hamza of the Investors Education Fund, a non-profit financial advice organization.



The No. 1 mistake shoppers make is going into holiday spending without a plan.



"The spirit of giving is a great thing but you have to check it with the spirit of resources," Mr. Hamza says. "Make sure you know how much you have to give before you start giving."



Canadians spend on average between $500 and $1,500 on holiday gifts and related expenses. But consumers shouldn't spend more than 1.5 per cent of their of total income during the holidays, Mr. Hamza says. That amounts to $750 for Canadians with an average household income of $50,000.



Ideally, holiday money should be added to savings throughout the year but many shoppers end up financing their holiday purchases with credit cards, a debt that can linger well into the new year.



However, with a few weeks — and a few paycheques — left before the holidays, there's still time to accumulate a modest fund and create a budget to avoid a holiday debt hangover.



Start by going over last year's expenses; if the amount spent seems within good judgement, then you have a budget to work with. But if it includes any frivolous expenses, you have now identified where to cut back.



Set a limit for each aspect of holiday spending, including for meals and baking, decorating, wrapping and cards and gifts that can range from a flat screen TV for your family to wine for the host of a holiday party.



If you overspend in one category, don't panic, just scale back spending in another to make up for it.



Write a list of people you are buying for and price ranges for each gift (or the exact gift if you're really savvy) you have in mind. If the total exceeds the budget you've set out, scratch some people off or lower the amount per present.



Using cash rather than credit makes it easier to stick to that limit because it's far too easy to pull out the plastic and forget about how much that purchase contributes to the overall debt load.



If you do use credit cards, make a plan to pay it off before too much interest accrues.



Budgeting more time means spending less money — starting early leaves you time to shop around and compare prices.



"Making your decisions on the floor of the mall doesn't leave you with a lot of options," Mr. Hamza says. "If you know beforehand that you have a limited budget, or even limited time, you can start to make decisions that are perhaps a wiser use of your cash."



The Internet is a helpful resource that will save time and money and allow the best ways to comparison shop, says Derek Szeto, founder of RedFlagDeals.com, an online community for deal seekers.



"Online, you can window shop at hundreds and thousands of stores," he says. "And the speed at which you can do comparison shopping online is that much higher as well."



Canadians can also go cross-border shopping online to take advantage of shopping bargains — made even more appealing this year as the loonie hovers around par with the U.S. greenback.



This year, U.S. retailers are making huge efforts to lure Canadian shoppers south of the border to ramp up spending in their weak economy.



Canadians who want bargains but don't want to have to deal with an hours-long commute, border lineups and busy malls can still cash in on the bargains from their own home, through shopping online.



There are also many opportunities online to combine different discounts, for instance using a coupon or one-day discount as well as a free shipping promotion.



Most major retailers like Wal-Mart and Amazon offer free shipping this holiday season. But Canadians should ensure the website they order from ships to Canada and to inquire about any additional charges such as taxes and duty that might be expected on delivery.



If you're unsure about a deal, visit a forum like RedFlagDeals.com to see if others have encountered extra charges. The site also accumulates lists of retailers who offer free shipping and other online discounts.



But online browsing is not for the last-minute shopper. Usually, orders have to be in by the end of the first week of December to ensure delivery by Christmas. But even if the deadline passes, going online can still save money because it allows shoppers to research which retailer is offering the best deal, Mr. Szeto says.



"If you need to go to the mall for last-minute shopping, at least go with a list, having done all the research online, and then you're not wandering around the mall."

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