Holidays and Christmas without new debt

Resources · Life and money · 5 min read Starting out

Key points

• Christmas spending put on credit can linger well into the new year, and interest keeps adding to it.
• Saving a set amount each week or month spreads the cost across the year.
• A written budget for gifts, food and travel keeps spending visible.
• Buy now, pay later and store credit still count as debt.

How to avoid Christmas debt

Want to avoid Christmas debt? Know what the holidays will cost you, then save for it ahead of time. That’s really the whole trick. Split the total into small weekly or monthly amounts and one big scary bill becomes something you can handle.

It works for any big holiday or celebration you mark. The problem is always the same. Gifts, food, travel and events all land in a few short weeks, which is exactly why they end up on credit so easily.

What holiday spending on credit costs

Here’s what happens when Christmas goes on a credit card.

Assumptions:

• Holiday spending: $1,200 on a credit card
• Rate: 21% a year, charged monthly
• No other spending on the card

The same maths works in any currency.

At $60 a month, you’re still paying off this Christmas two Christmases from now. And if every year adds a fresh $1,200, the balances start to overlap and build.

Clear the full balance before any interest is charged and you skip that cost completely. Our guide to interest-free periods explains how that window usually works.

Saving for it instead

Here’s the same $1,200, saved ahead of time:

The weekly and fortnightly amounts are rounded to the cent. Start in January and you get the full year. Start later and you either save a bigger amount each time or set a smaller total budget.

Keep this money in a separate account so it doesn’t quietly get spent along the way. An account like this, set aside for a known future cost, is often called a sinking fund. Our guide to sinking funds explains how to set one up.

Make a holiday budget

Write it down. All of it. A budget on paper shows you the full cost before you’ve spent a cent.

Start with gifts: a list of people and an amount next to each name. Then food and drink, because holiday meals often cost much more than a normal week. Add travel to see family, whether that’s fuel, flights or trains, usually at peak prices. Don’t forget events like work parties, school concerts and outings. Then the little extras that sneak up on you: decorations, wrapping, cards, postage, a new outfit.

Add it up and compare it with what you’ve saved. If the budget is bigger, something on the list has to shrink.

Ways to spend less without missing out

A Secret Santa is a good place to start. One gift each instead of a gift for everyone, and a lot of families and friend groups end up preferring it. Agreeing on a spending limit takes the pressure off everyone too. Some families go further and stop adult gifts altogether, so only the kids get presents.

Homemade or experience gifts can mean more than anything from a shop. Think baking, a meal, or just time together. If you’re hosting, ask everyone to bring a dish. And buying gifts on sale through the year means less damage in December.

One more thing. Start the conversation early. Talking budgets with family in October is much easier than in mid-December.

Not every tradition has to stay. Most people find the time together matters more than the gifts anyway.

Watch for “pay later” offers

The holiday season brings plenty of offers to spread the cost.

Buy now, pay later is the big one. Small instalments feel manageable, but a few plans running at once add up quickly, and missed payments may bring fees. Store cards and retail credit often have promotional periods that end with high interest on whatever balance is left. And “nothing to pay until next year” deals? That still means paying next year.

Some people who pay on time and track every plan make these work. For others, they blur the full amount owed. Either way, it’s still debt.

If you’re already carrying last year’s Christmas

If last year’s holiday spending is still sitting on a card, you’re not alone. Some people pay that off first and keep this year small. Others save for this year while still repaying last year’s. Put the numbers side by side and see which feels workable for you.

If you can’t keep up with repayments, free debt help is confidential and can talk through your options.

Common questions

How much should I budget for Christmas?

That depends on your income, your costs and your family’s traditions. A sensible way in is to work out what you can save by December, then fit the gift list to that amount.

How do I get out of Christmas debt?

List what you owe. Put as much as you can toward it each month, and don’t add new spending. Paying more than the minimum clears it faster. Paying only the minimum is a slow, expensive way out.

Is it a good idea to use buy now, pay later for Christmas?

It depends how you use it. Paying every instalment on time avoids fees, but several plans at once can be hard to keep track of.

Try it

The savings goal calculator shows how much to put aside each week or month for the holidays. Still paying off past spending? The credit card payoff calculator shows how long it will take.

General information only, not financial advice. Your situation is your own.