How to save money and avoid debt this year

As the holidays approach, many people are bracing themselves for an expensive shopping season amid tariffs, inflation, and an overall higher cost of living.

As a result, 84% of consumers said they plan to cut back on spending — particularly on dining out, clothing, and big-ticket purchases — over the next six months, according to PwC’s 2025 Holiday Outlook. Even so, respondents expect to spend an average of $721 on holiday gifts (down from $814 in 2024). And more than half plan to lean on credit cards to cover the cost.

But experts say this is a costly mistake.

“Ideally, it’s best to avoid debt during the holiday season,” said Casey Brueske, community education development specialist at PenAir Credit Union. “Debt during the holidays carries over into the new year, putting you in a deficit before you have time to make your financial resolutions for the new year.”

The good news is that there’s still time to prepare your budget for a busy spending season.

Avoiding debt in the new year starts with getting your financial house in order now so you’re ready for the added pressure of holiday expenses later.

If you haven’t already, add a line item for holiday spending in your budget. Creating a holiday “sinking fund” — a small pool of money you contribute to regularly to cover irregular, planned expenses — can give you a financial cushion for gifts, travel, and other holiday-related costs, without dipping into funds meant for other expenses.

Not sure where that money will come from? Perform a budget audit: Review your recent expenses to identify areas where you can cut back (think: dining out, streaming services, subscriptions) and redirect those funds toward your holiday savings.

You can supercharge your savings by putting your holiday sinking fund in a high-yield savings account (HYSA) with a competitive interest rate. Some of the best HYSAs currently earn upwards of 4% APY, meaning your balance will earn interest and continue to grow without any extra work on your part.

Set a spending limit — and stick to it

Decide how much you can afford to spend in each category — whether that’s $30 per gift or $300 total for travel — and commit to staying within those limits. This discipline helps you filter out impulse buys that can derail your budget.

“It’s easy to get caught up in the spirit of giving, but setting a spending limit can make the holidays far more enjoyable,” Brueske said. “When you build your budget, take stock of who you plan to get gifts for and how much you’re comfortable spending on them, all the gatherings, and travel, then break it down by category. Don’t forget to include all the little extras like decorations, holiday cards, and last-minute stocking stuffers.”

Who says you have to wait until December to buy gifts? Start shopping early so you have time to compare prices, find sales, and use discount codes — ensuring you get the best deal on everything you need.

Brueske also suggested researching which retailers offer holiday price-match guarantees, which ensures you don’t get stuck paying a higher price than necessary. “Dates and policies can vary from company to company, so it’s important to review any exclusions before attempting to make a claim,” she said.

Read more: How ‘slow shopping’ could help you save money this holiday season

If you have the time and energy, taking on a temporary part-time job or seasonal side gig can help you earn some extra cash and offset holiday expenses. Consider picking up a few shifts at your favorite store, delivering groceries, or selling handmade goods to friends and family.

Read more: 5 holiday side hustles to boost your end-of-year budget

Aside from cutting monthly expenses from your budget and earning extra income, there are a few more creative steps you can take to reduce costs this time of year.

For example, if you’re feeling stretched thin, it can help to whittle down your gift recipients. You might suggest a gift exchange among your friend group or family members. Focusing on one thoughtful gift instead of many smaller ones can make giving more meaningful and budget-friendly.

Another resource that could ease the financial burden of the holidays is your credit card rewards. Points you’ve racked up throughout the year can often be redeemed for gift cards, airline miles, or even merchandise. Your rewards may not cover all of your expenses, but they can certainly help your money go a lot further.

Ultimately, the holidays aren’t about how much you spend — they’re about being intentional and thoughtful with your time and money. By planning ahead, setting limits, and using smart spending strategies, you can enjoy the season without starting the new year in debt.

Read more: 6 creative holiday savings tips to keep your budget in check this year