The holidays are expensive for almost everyone

If you feel like the holidays cost more than they used to, you're not imagining it. Over a third (37%) of Americans racked up holiday debt last season, averaging $1,223 — up from $1,181 the year before and the highest since 2022. Parents with kids younger than 18 were hit even harder, with nearly half (48%) borrowing to cover the holidays, piling on an average of $1,324 in debt.

Most of that debt doesn't disappear quickly either. When asked how long it'll take to pay it off, 63% said three months or longer, and 40% are paying interest rates of 20.00% or more. On top of that, 41% of Americans who took on holiday debt this year are still paying off debt from last season. That's the trap: one holiday's debt bleeds into the next one before it's even paid off.

The good news is this isn't about willpower or being "bad with money." It's about putting a number on paper before the shopping starts, instead of after the bill arrives.

Start with a real number, not a feeling

Most people don't go over budget because they're careless. They go over because they never set a budget at all — they just started buying and hoped it would work out. The Penny Hoarder's 2026 survey found that inflation, credit card debt and rising costs are forcing over 77% of Americans to cut back this holiday season.

Before you buy anything, write down every category you're spending on: gifts, food, travel, decorations, hosting, teacher or coworker gifts, shipping. People tend to forget food and hosting costs — and they add up. Among people who host holiday events, the average spend is $328, catering for 10 people on average.

Once you have the categories, put a dollar amount on each one and add it up. Compare that total to what you can actually afford between now and January — not what you wish you could spend. If the number is too high, cut it now, on paper, instead of cutting it later with a credit card.

Build the holiday fund in pieces, not one lump sum

If you wait until December to find the money, you're setting yourself up to borrow it. A sinking fund — a small, separate pot you add to every payday — turns one scary number into a series of small, manageable ones.

Say your budget is $400 and you have eight weeks before you need most of it. That's $50 a payday if you're paid weekly, or $100 if you're paid biweekly. Moving that money into a separate savings account or a sub-account as soon as you're paid means it's not sitting in your checking account tempting you to spend it on something else.

If pay is irregular because your hours or gig earnings swing week to week, save a percentage instead of a flat number — even 5% of what hits your account on a good week adds up faster than people expect.

Why credit cards and "pay later" plans make this worse

Most holiday debt sits on credit cards (62%), BNPL loans (35%) or store credit cards (32%). Buy now, pay later plans feel painless because the first payment is small, but they add another bill to track, and missing one can trigger fees or interest you didn't expect.

Credit cards are worse for a different reason: the balance doesn't go away just because the holidays are over. Credit card rates currently average more than 20%, according to Bankrate. A financial expert put it simply: "Carrying a month or two of holiday debt is no big deal. Extend that out to six months to a year or longer and it becomes significant because of how high interest rates are on credit cards today."

If you do use a card, treat it like a debit card: only swipe it for what you've already saved, and pay it off the same month. That way you get any rewards without paying interest on the balance.

Smaller moves that add up

A few habits make the budget easier to stick to without feeling like you're skipping the holidays:

  • Set a per-person limit before you shop, not after you're standing in a store with something in your hand.
  • Track spending as you go, even with a simple notes app list — it's much easier to stop at $400 if you can see you're already at $380.
  • Use cashback where you can, since money back on grocery and gift purchases you were already going to make effectively stretches the budget without extra spending.
  • Separate "want" gifts from "need" gifts for big-ticket items like electronics, and give yourself permission to say no to the want list if the budget runs out first.
  • Plan for the letdown after, mentally and financially — two-thirds of people (66.1%) say they've gone into debt to cover holiday costs at least some of the time, with 35.3% saying this happens regularly, and among those who took on holiday debt, the average amount was $1,126. Knowing that number exists for a lot of people can make it easier to stop and course-correct mid-season instead of finding out in January.

If you're already short before the holidays even start

Setting a budget works best when you start weeks ahead. If December is already here and you're behind, the move isn't to panic-spend on a credit card — it's to shrink the list first, then look at what cash you can free up before you borrow anything. A smaller holiday with no debt attached beats a bigger one you're still paying off next summer.