How To Have A Debt-Free Christmas (A Step-By-Step Guide)

How To Have A Debt-Free Christmas 

Last year the average American racked up $1,230 in holiday debt. 

Most of these people never meant to spend this much. They waited until the last minute. Then, with no cash on hand, they reached for their credit cards to cover the expenses. Now they’re in a frantic race against time to pay off last year’s Christmas before December rolls around again.

We’ve all found ourselves in this situation, but it doesn’t have to be this way. 

Believe it or not, you can deck the halls, spread holiday cheer, and buy gifts for everyone on your list without going into debt. 

Here’s how. 

Save For Christmas Year-Round 

The best way to plan for Christmas without going into debt is to follow these four steps.  

Step 1: Calculate How Much You Need To Save Per Month

Christmas comes only once a year, but you should treat it as a monthly expense. 

Take a few minutes to calculate how much you spent last year. Now ask yourself, do you want to spend that same amount again?  Adjust your number if needed, then divide it by 12. 

Use our free Christmas Savings Tracker. (Each time you save money, color in one of the Christmas tree bulbs until you reach your goal.)

Congratulations! You’ve just calculated exactly how much you need to save each month to have a debt-free Christmas. 

With this number in mind, head on to Step 2. 

Step 2: Open A Separate Savings Account 

You don’t want your holiday money to get mixed in with your emergency fund, so open a separate savings account just for Christmas. 

If you’re worried you’ll accidentally spend the money on other things, look for a bank that offers holiday savings accounts. These special accounts usually don’t allow withdrawals until November 1, so you’re not tempted to spend before the holidays.

Once you’ve opened a separate savings account—either at your current bank or another one—move on to Step 3. 

Keep your savings account at a different bank.

Step 3: Set Up Automatic Transfers

Make saving for the holidays pain-free by setting up automatic transfers. Ideally, you’ll want to have the money transferred out on payday, so it never hits your checking account. 

If you already use direct deposit with your employer, the simplest way to automate transfers is to redirect part of your paycheck into your new savings account.  

So, if you usually spend $600 during the holidays, have $50 deposited into savings if you get paid monthly. Or, $25 per paycheck if you get paid bi-weekly. 

Step 4: Boost Savings With “Bonus” Money

Bulk up your holiday stash by saving any bonus money you earn throughout the year. Here are three examples:

  1. Extra paychecks. If you get paid bi-weekly (as we do), you get an “extra” paycheck twice a year when there are three pay periods in the month. We use this “extra” money to save for vacations, birthdays, and holiday expenses. You could too. 
  2. Tax refunds. Save for Christmas all at once by setting aside part of your tax refund. It may feel weird saving a lump-sum for something that’s 8+ months away, but the money will be right there when you need it. 
  3. Credit card rewards. Want to pay for Christmas with free money? Redeem all those credit card rewards points straight into your holiday savings account.  

Make A List And Stick To It

By this point, you’ve automated savings and you’re on your way to a debt-free Christmas. But you’re not out of the woods yet. 

Create a list of people you plan on buying gifts for, write down exactly what you’ll buy them, and stick to it! 

When you go into Target and walk past the dollar section, don’t get sucked into buying added stocking stuffers and tchotchkes. It may seem okay to go hog wild on little extras, but it’s the quickest way to derail everything you’ve worked so hard for.

The National Retail Federation expects Americans to spend $730 billion on holiday shopping this year. (Emphasis on the word billion.) And we all know these people aren’t buying their gifts with cash. Most of them will start the new year with more debt than they had before. And the holiday season will be to blame.  

Stay laser-focused on your plan. 

Give Yourself Permission To Do Less 

Even after you automate your savings and make a list of gifts, you’ll still feel pressured into doing more. 

Your coworker will tell you she bought her boyfriend a $500 Xbox One X. Your brother will say he’s surprising your dad with season tickets to the New York Giants. Your friend will confide in you that she knows her kids are a handful, so she’s buying $100 gifts for their teachers. 

Before you convince yourself that you need to do more, remember this… Christmas is about making memories with the ones you love. It’s about spending time with family and friends. It’s not about going into debt because you need to make sure your cousins, their spouses, and their children have gifts when they come over. 

Ten years from now your cousin won’t remember that sweater you gave her (she probably won’t even still have it). But she will remember how you both laughed until you cried as you sat around the dining table telling old stories from your childhood.

So, go ahead. Give yourself permission to do less this year. Give fewer gifts. Choose time over money. Spend less on traditions you don’t care about. It’s not about spending money you don’t have for Christmas decor for that perfect Instagram photo.  Do whatever it takes to not go into debt. 

If anyone questions it, simply say, “We don’t have the money” or “We’re focusing on paying off debt.” Being this straightforward may feel awkward, but your friends and family will admire you (and secretly wish they’d reigned in their spending too).  

Start Planning Your Debt-Free Christmas Now

Having a debt-free Christmas doesn’t have to be a holiday miracle. It may seem impossible now, but take the baby steps listed in this article and you’ll be on your way to celebrating a guilt-free, stress-free holiday. 

To recap, this is exactly what you need to do to have a debt-free Christmas:

  1. Calculate how much you need to save each month.
  2. Have the money automatically transferred into a separate savings account. 
  3. Boost your holiday cash with bonus funds.
  4. Make a list of gifts and stick to it. 
  5. Remember that Christmas is about making memories and spending time with loved ones, not racking up debt and feeling stressed.

Have you struggled with holiday debt in the past? If so, what steps are you taking to do things differently this year? Let me know in the comments below.

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  1. Maria @ Handful of Thoughts | 19th Nov 19

    Great advice. Another thing I’m going to try next year is devote any “found” money to Christmas too. This includes any extra money I use from using apps on my phone. This found money is all bonus in my books so why not use it to stay out of debt and spread cheer to others?!

  2. Katie @ Agape Investing | 3rd Dec 19

    My favorite one is – give yourself permission to do less. I love to experience everything and give lots of gifts, but doing that is expensive… We are really trying to cut back this year. Last night we even said no to buying more peppermints to put in our candy jars (we already had red and green M&Ms!!) Every dollar counts.

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