How to Avoid Holiday Debt: 8 Steps to Stay on Budget

Holiday spending is rising sharply in 2025, with shoppers planning to spend more on gifts and online purchases than last year. This guide shares 8 steps to help you avoid holiday debt, set clear expectations, create a realistic budget, shop smarter, and stay in control of your finances this season.

 

Holiday Spending Is Surging in 2025

Holiday shoppers are planning to spend more in 2025. 

According to Visa Business and Economic Insights (VBEI), consumers expect to spend an average of $736 on holiday gifts – a 10% jump from last year.[1] 

The National Retail Federation forecasts that 2025 holiday sales will surpass $1 trillion for the first time.[2] 

And Adobe expects online spending to hit a record $253.4 billion, up 5.3% from last season.[3] 

With numbers like these, it’s easy to see how holiday spending can get out of hand. 

But it doesn’t have to.

Below are 8 practical steps to help you enjoy the season without taking on debt and keep your financial goals on track long after the holidays are over.

 

Before You Begin (Prerequisites)

To follow this guide effectively, gather:

• Your monthly budget
• Expected holiday expenses (gifts, travel, food, décor)
• A list of gift recipients 
• Any existing debt balances

 

Step 1: Know Where You Stand Financially

Holiday debt often happens not because people plan to overspend, but because they don’t know exactly how much room they have in their budget.

Ask yourself:

• How much discretionary income do I have between now and Christmas?
• How much existing debt am I already carrying?
• What can I responsibly afford this holiday season?

Having clarity on these three questions is one of the strongest ways to avoid taking on new debt. 

And the numbers show why this step matters.

According to NerdWallet’s 2025 Holiday Spending Report…

• 31% of 2024 holiday shoppers who used credit cards still haven’t paid off the balances.
• 18% of 2025 holiday shoppers will use Buy Now, Pay Later for gifts.
• 31% of 2024 holiday travelers who used a credit card for last year’s holiday travel expenses still haven’t paid it off. 
• 17% 2025 holiday travelers say they’re carrying credit card debt from multiple previous holiday travel seasons.[4]

These statistics highlight how easy it is for holiday debt to follow people from one year to the next. 

Getting a clear view of your current finances now is the first step toward making sure that doesn’t happen to you.

 

Step 2: Set a Realistic Holiday Budget

Yes, it’s already November, but it’s not too late to create a holiday budget that protects your finances. 

Even if you didn’t plan ahead earlier in the fall or you’ve already bought a few gifts, you can still get a clear structure in place today.

In addition to gifts, your holiday budget should include:

• Travel
• Food and hosting
• Decorations
• Parties or events
• Wrapping supplies

Once you total those categories, decide how much you can realistically spend without going into debt. 

Then set gift boundaries – a specific dollar amount per person. 

This ensures every purchase has purpose and keeps spending from spiraling.

 

Step 3: Manage Gift Expectations

One of the biggest reasons people overspend during the holidays has nothing to do with money…

It has to do with emotion. 

Many of us feel pressure to give big, keep up with others, or avoid disappointing the people we love. 

According to financial psychotherapist Alex Melkumian, PsyD., “A lot of us have high expectations when it comes to the holidays. If you have to cut back on gift-giving or other seasonal festivities. ‘This may bring up feelings of shortcomings and being less than.’”[5]

But unmanaged expectations can turn a joyful season into months of financial stress. 

That’s why it’s important to communicate your gift boundaries clearly with kids, family, friends, and anyone involved in your holiday traditions.

Helpful ways to set expectations:

• Use a simple dollar limit: “We’re staying around $30 per person this year.”
• Explain your reasoning: “We want to enjoy the holidays without carrying debt into the new year.”
• Simplify the exchange: “Let’s each bring one meaningful gift instead of multiple small ones.”
• Redirect kids to realistic options: “That’s not in our budget this year, but here are a few things that are.”

Remember, setting expectations isn’t about giving less – it’s about giving responsibly, so your financial life stays on track long after the holidays are over.

 

Step 4: Shop Smart

With prices rising this year, smart shopping can make a big difference. 

According to the VBEI report, “Inflation for holiday-related items is quickly catching up to the pace of the overall Consumer Price Index (CPI). In particular, inflation for recreational goods, which makes up about 30% of the holiday sales CPI basket, surged 3.1% year-over-year in September.”[1] 

Yet, retailers are pushing more promotions than ever.

Before buying, compare prices, use coupon tools, and stick to your list. 

Be especially mindful of Buy Now, Pay Later options because this option makes it too easy for shoppers to break their budgets without realizing it.

 

Step 5: Use Credit Cards Strategically

Credit cards can be helpful during the holidays, but only if used with discipline. 

To stay on track:

• Use credit only if you can pay the full statement balance.
• Track your charges as you go so nothing surprises you.
• Avoid using credit to stretch your budget…it usually leads to costly interest payments.

And while Buy Now, Pay Later options may feel easier than credit, they can stack up quickly. 

If you do use financing, make sure it fits within your existing budget – not on top of it.

 

Step 6: Choose Group Gifts When Needed

If someone on your list wants a higher-priced item, consider teaming up with family or friends. 

With shoppers planning to spend an average of $736 on gifts, per the VBEI report, group gifting can soften the financial load.[1] 

This approach works especially well for:

• Kids’ “must-have” gifts
• Gifts for parents and grandparents
• Quality items that are meaningful but not affordable alone

Group gifting allows everyone to contribute without strain while still giving something special.

 

Step 7: Use Creative and Alternative Gifts

Who says you always have to buy gifts for the holidays? 

If you’re tight on cash or don’t want to dip into savings or go into debt, consider these alternative gift ideas: 

• Experience gifts (visits to museums, day trip, or horseback riding)
• Homemade or DIY projects
• Free or low-cost service gifts (babysitting, yardwork, meal prep)

These options are thoughtful, personal, and easier on your wallet.

 

Step 8: Try Not to Shop for Yourself

It’s surprisingly easy to slip a few “treat myself” items into your cart while holiday shopping. 

Retailers count on this, especially when they know most people are already in a spending mindset. 

But if you’re tight on cash, buying for yourself can quietly push your budget over the edge.

Before adding anything extra, pause and ask: “Is this something I truly need right now or can it wait?”

Chances are, it can wait. 

Saving those small amounts helps protect your budget and keeps your holiday spending focused on what you planned – not on impulse. 

Your future self will be grateful you held back.

 

Key Takeaways

• Holiday spending is rising in 2025, making a clear budget essential for avoiding new debt.
  
• Understanding your financial starting point helps prevent rolling credit card balances into the new year.
  
• Setting gift boundaries and managing expectations reduces emotional overspending.
  
• Smart shopping, alternative gift ideas, and avoiding impulse “treat myself” buys help keep holiday costs under control.

 

Sources:

[1] Visa Business and Economic Insights. 2025 Holiday Spending Outlook,  
2025.
https://corporate.visa.com/en/sites/visa-perspectives/trends-insights/2025-holiday-spending-outlook.html

[2] National Retail Federation (NRF). NRF Expects Holiday Sales to Surpass $1 Trillion for the First Time in 2025, 2025. https://nrf.com/media-center/press-releases/nrf-expects-holiday-sales-to-surpass-1-trillion-for-the-first-time-in-2025

[3] Adobe. 2025 Holiday Shopping Report, 2025.
https://business.adobe.com/resources/holiday-shopping-report.html

[4] NerdWallet. 2025 Holiday Spending Report, Oct 14, 2025.
https://www.nerdwallet.com/article/studies/holiday-spending-report

[5] Everyday Health. Worried About Money This Holiday Season? Here’s What Financial Psychologists Want You to Know, November 2, 2022. https://www.everydayhealth.com/emotional-health/worried-about-money-this-holiday-season-heres-what-financial-psychologists-want-you-to-know/