Holiday spending can lead to holiday debt

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SALT LAKE CITY — Holiday shopping so far this year has resulted in record-setting U.S. retail sales as bargain hunters nationwide have chased after super-saver holiday deals.

And all that expense can lead to some heavy-duty post- holiday debt if not managed properly, according to financial advisers and analysts.

The four-day period between Thanksgiving and Sunday saw U.S. consumer spending of $54.2 billion — a 16 percent increase over last year. Similar results came out of Cyber Monday, with online sales climbing 18 percent over 2010 — both record-setting levels for consumer spending.

The National Retail Federation reported that shoppers spent an average of $398.62 over the Thanksgiving weekend — up from $365.34 last year. Online sales on Black Friday jumped 26 percent to $816 million and 18 percent to $479 million on Thanksgiving Day, according to Reston, Va.-based research firm ComScore.

Tips for Managing Holiday Expenses

Create a budget and stick to it: Set a dollar amount based on what you can afford. Include a $20 to $100 cushion for unexpected expenses.

Make a list: Write down names of who you plan to buy gifts for and how much you can afford to spend on each person. Include wrapping paper and mailing supplies in budget.

Use credit wisely: Take only the credit cards you need when holiday shopping, using the card with the lowest interest rate.

Save your receipts: Keep track of expenses and add them up weekly. If you're getting close to your spending limit, reevaluate your list and consider alternative gifts.

Shop around: Start your holiday shopping early to give yourself time to comparison shop and do research.

Pay bills on time Avoid missing the due date for credit card payments. Even if you can only pay the minimum, pay it on time.

Info: Zion's Bank

Last year, the typical American spent an average of $690 on holiday spending. The NRF found that more than half of the average consumer’s entire holiday budget — $393.55 — was spent on gifts for family members, with video game systems, jewelry, electronics and vacations among the most popular items.

Food was the second highest holiday-related cost at $86.32, followed by gifts for friends at $71.35 and decorations at $41.51.

There are strategies that can help families and individuals from falling prey to the holiday spending trap.

Establish a guideline of what you'd like to spend in advance and stay within those parameters, advised Craig Israelsen, an associate professor at BYU who teaches personal and family finance.

"If you plan for it and it fits into your budget, then you can spend it without guilt," Israelsen said. "At some level, a budget has to be quantitative, and it has to be written down. To the extent that we plan what we’re going to spend within the confines of (the holiday) budget, we've created a (feasible financial plan)."

A local economic analyst said keeping close track of spending could prevent the potential pitfall of running up massive credit card debt that can be especially costly if not managed correctly.

"Debt makes sense for longer-term investments — like education or housing or businesses," said Pam Perlich, senior research economist with the Bureau of Economic and Business Research at the University of Utah. "(But) it doesn't make a lot of sense to use debt to buy something that is here today and gone tomorrow. It's just not a good idea."

The U.S. Commerce Department said consumer spending — which accounts for about 70 percent of the nation's economy — grew at an annual rate of 2.3 percent during the third quarter, the fastest pace of 2011.

Meanwhile, the national savings rate declined, suggesting that some consumers used their nest eggs to pay for their increased spending. However, in October, consumer spending rose less than forecasted as Americans used the largest gain in incomes in seven months to rebuild savings.

Household debt in the U.S. declined by 0.6 percent in the third quarter as mortgage balances shrank, according to a survey from the Federal Reserve Bank of New York.

Preston Cochrane, president and chief executive officer at AAA Fair Credit Foundation in Salt Lake City, said consumers should take advantage of available resources to help them avoid holiday debt hangover.

Cochrane said a great deal of helpful information is online at www.utahsaves.org. Utah Saves is a coalition of nonprofit, corporate and government groups that offer information and advice — mostly free — for those who want to learn to manage their finances.

"If you can save money and everything is going to debt, you're always going to be living paycheck to paycheck," Cochrane said. "How do you deal with holiday debt? Primarily, it's having a financial plan and sticking to it."

Email:jlee@ksl.com