Published December 10, 2012
For some it's an annual phenomenon: the New Year's hangover. But there's reason to believe next month's could be worse than usual.
No, not the headache that comes from a late night and too much champagne on New Year's Eve. That might hurt for a while, but you'll be fine in a day or so. The hangover with more lasting effects comes from the harsh reality of the holiday credit card bills that come due in January. Some people dig themselves a hole in December that they spend the following year trying to escape. And again, 2013 is shaping up to produce a particularly nasty financial hangover.
Overindulgence in the making
Why might this year be worse than others? There are a couple reasons.
First, early reports on Black Friday weekend sales figures show sales up 13% compared to last year. Couple that booming start with an unusually long holiday shopping season (due to an early Thanksgiving) and you have the makings of a record year for holiday spending. Short-term, that may seem like good news for the economy, but the reality is that with Americans already over-burdened with debt, all this spending will make things tougher when the bills arrive in January.
Second, paying those bills may get a great deal tougher if a solution isn't found to the fiscal cliff. A number of temporary tax cuts are due to expire in January, so if a deal to extend them isn't reached, you can count on a smaller paycheck in 2013. How much smaller depends on a number of things -- your income, marital status, exemptions, etc. -- but as a rule of thumb, use an estimate of 5% smaller. That's because federal income tax rates for many people will rise by 3%, and a 2% temporary reduction in Social Security payroll tax will expire.
In short, people could be facing record holiday bills with smaller paychecks. That's a recipe for a brutal financial hangover.
Avoiding the regret
How can you avoid that holiday spending hangover? Try these steps:
One of the most galling things about a hangover is knowing it could have been avoided with more sensible behavior. By taking these steps, you'll likely enter the new year with no such regrets -- at least on your finances.
The original article can be found at Money-Rates.com:
4 steps to avoiding a spending hangover