December 26th may seem like the worst time ever to start talking about a holiday budget. But if you’re like millions of other Americans, it won’t be long before the Christmas bills arrive and the regret sets in.

So, that makes today a great time to prepare for next year. In this blog post, we’ll briefly touch down on the vicious cycle of Christmas debt and give you some practical pointers on how to get out of it.

Understanding the Christmas debt cycle

Before making a plan to stay out of Christmas debt, you need to understand why it happens. And that reason is complex because it involves culture, habits, and emotions. This topic could be its own blog post, and we won’t go there today.

But in a nutshell, culture, habits, and emotions make people want to be generous and giving at almost any cost. Anything less makes them feel like a Grinch, even if they don’t have the cash on hand to avoid the feeling.

So, they reach for the credit card. And it feels really good until the bills start rolling in. Then panic and regret set in, muddling our minds from taking a proactive approach to ending the problem.

Let’s end that cycle right now.

The root cause of Christmas debt

All money is behavioral. And all behaviors are based on a mindset.

So, the first thing to do is to change your mindset about giving. Research has shown that we often worry about the receiver’s reaction when we give. If they don’t love it, we feel bad. That makes the gift-giving about the giver, not the receiver. And that’s why we overspend to get that perfect gift. The other behavior we have is giving gifts to make up for not being present to a loved one during the year.

So, avoiding Christmas debt means taking the focus off your reactions. Don’t worry about how you’ll feel when they get your gift. If you’ve built genuine relationships throughout the year, you can give almost anything; the receiver will love it. It doesn’t have to be perfect or cost a fortune.

Digging out of debt and staying out

That mindset won’t happen overnight, but you can develop it enough today to start taking practical steps.

First, tally up your Christmas debt for this year and make a line item in your budget to eliminate it as quickly as possible.

Right underneath that line item, create another line for Christmas savings. Think about everyone you need to get gifts for and how much you can afford to set aside each month.

Then, set your spending based on the priority of your relationship with that person. That may sound harsh, but it is practical. Let’s be honest: you’ll want to spend a little more on someone you have a deeper relationship with.

You may even want to eliminate people from your giving list. That great-nephew who can’t remember your name and only sees you at Christmas might be a good candidate.

Then, create a bank account specifically for Christmas savings. Set it up for direct deposit based on what you can afford in your budget.

Now, you are eliminating debt and setting up a sinking fund to avoid it next year.

Remember, this year might be a little tough because you’re eliminating debt and saving at the same time. But next year will be easier (and more fun) because you can save and give more to those you love.

Using the Christmas Fund

You’ll want to create a gift list now that you are saving. Remember, work on getting over the need to please yourself. If you cultivate good relationships with those you love all year, an affordable gift at Christmas will do.

A budget-friendly gift list will reduce your stress and make shopping easier. You’ll have all year to look for deals and pounce on them when you have enough saved.

And track your spending. Keep a close eye on that bank account. You may also want to create friction between you and your credit card.

The Bottom Line

You don’t have to live in a cycle of holiday debt. By making the personal and practical changes necessary, you can have a deeper, more meaningful Christmas without the stress and anxiety of a financial hangover.

So, do the hard work today and enjoy years of rewards. Oh, and Merry Christmas!