Posted on Sun, Nov 18, 2007

Buyer Beware: Avoid holiday overspending

By Cara Baruzzi

It’s that time of year again, when thoughts start turning to holiday shopping, parties and travel. But experts warn that, without some planning and budgeting in advance, consumers may fall into the common trap of overspending during the holidays, which can lead to a financial hangover come the new year.

To ensure they can afford everything on their holiday wish list, consumers should start planning now, according to the Connecticut Society of Certified Public Accountants.

The most important aspect of planning ahead, experts say, is devising a budget. Before heading to the mall, consumers should make a list of the gifts they want to buy, accompanied by a realistic estimate of what each one is likely to cost, said Paul A. Caiafa, a certified public accountant at Solakian, Caiafa & Co. in Hamden.

“Oftentimes, people just don’t keep track of their spending,” he said. “They do a lot of buying with no overall budget in mind.”

Consumers will spend an average of $923.36 on holiday-related purchases this year, up 4 percent from last year, according to the National Retail Federation. Of that, $816.69 will be spent on gifts, and consumers will spend the other $106.67 on purchases for themselves.

Come New Year’s, shoppers who don’t pay attention to their budget may be surprised to realize how much money they have spent, he said.

“Put together a budget, and then stick to it,” he said. “Avoid the surprises.”

Budgets are not only necessary for gift shopping, but also for other holiday-related expenses, such as travel and parties. While some may not consider parties to be expenses, they can add up if partygoers bring their hosts a gift or head to the salon beforehand, according to the Connecticut Society of CPAs.

Other ways consumers can avoid overspending during this time of year, according to the society, are:

۰Bring a calculator when shopping to help keep track of spending.

۰Limit the cash you carry. The less you have, the less you’ll spend.

۰Leave credit cards at home. Carrying cards in your wallet makes them available for purchases on a whim. Carry credit cards only when you know you will need them.

Whenever possible, consumers should use debit cards instead of credit cards, since debit purchases are drawn from their checking account — money they know they have — Caiafa said.

But for those who cannot resist carrying plastic this holiday season, credit card balances should be paid off as soon as possible to avoid rising interest and finance charges. Shoppers should always be mindful of the interest rates they are paying on credit cards. Most consumers should be paying a maximum of between 10 and 12 percent interest, Caiafa said.

Many people don’t realize it, but credit card companies are often willing to negotiate a lower interest rate for consumers in order to retain them as customers, he said. Cardholders should contact their credit card provider if they feel they are paying too much.

“A lot of times, they’re ignorant to what they’re paying in interest,” he said. “If you’re spending more than 10 to 12 percent on interest, you really owe it to yourself to make a phone call.”

Ideally, card holders who use their credit cards should pay off the entire balance at the end of each month, he said.

Overall, the best way to avoid overspending during the holidays is to start planning ahead for the season much earlier in the year. As hard as it may be, consumers will be better off come the holiday season if they start saving a little money every month, starting at the beginning of the year, Caiafa said.

“It’s a matter of budgeting,” he said. “It’s a matter of just putting money aside in little pieces so the money is there for you.”

Cara Baruzzi can be reached at cbaruzzi@nhregister.com or 789-5748.