How To Avoid Overspending This Holiday Season

The study focused on holiday spending behavior and how it varies depending on credit scores. CNMC separated the data into two levels – prime consumers with credit scores of 700 or above and non-prime consumers with credit scores below 700 (the "New Middle Class" referred to in the CNMC's title).

As you might expect, prime consumers spent more on all holiday categories, including gifts ($770 compared to $476 for non-prime consumers), travel ($435 to $198), meals ($149 to $118), and decorations ($98 to $90). Prime consumers averaged $172 in charitable contributions over the holidays, but non-prime consumers still managed to average $52 in charitable giving even with a limited budget.

"Budget" is the key word to prevent overspending, especially with non-prime consumers. While 39 percent of non-prime consumers with a plan overspent, only 24 percent did when the plan was converted into a strict budget. Non-prime consumers with a strict budget were 56 percent more likely to have improved finances compared to those with no budget at all. Prime consumers saw the same improvements, but to a lesser extent.

It's too easy to deviate from a flexible plan compared to a rigid budget — especially when you are tempted by holiday sales. Non-prime consumers who shopped sales were more likely to overspend compared to those who avoided sales (42 percent to 26 percent). Prime consumers who shopped sales were similarly prone to overspending (40 percent to 29 percent).

Surprisingly, coupon use also correlated to overspending. Non-prime coupon shoppers were more likely to overspend than those who avoided coupons (46 percent to 31 percent), while the difference with prime consumers was 41 percent to 32 percent.

How can you avoid overspending, especially if you're part of the New Middle Class? The CNMC study offers a few suggestions.

The study reinforces the importance of a budget, especially for non-prime consumers who don't have the cushion to avoid overspending. Create a realistic holiday budget based on your income and total expenses. Use the budget to create a specific gift list and assign spending limits for each person. One-quarter of non-prime consumers and 31 percent of prime consumers saved money this way.

Do online research and comparison-shop to find the best deals, but don't be lured by sales and coupon offers for items that aren't on your list. Stores are counting on you to overspend, and the survey suggests non-prime shoppers are more susceptible to sales pitches. Perhaps it's easier to think you're saving more money on sale items when you have less money to spend.

Track your spending to verify you're sticking to your budget. Two in five non-prime consumers and 38 percent of prime consumers tracked spending to stay in control of their holiday budget.

If unexpected expenses strike during the holidays, adjust your budget to match. That might be simple for prime consumers, but the New Middle Class will probably assume extra debt to deal with unpleasant financial surprises. Adjust your holiday budget to minimize the debt (and the corresponding interest charges if you carry a balance). Homemade gifts can help you scale back expenses, as they did for 9 percent of prime consumers and 12 percent of non-prime consumers.

In short, you can prevent overspending with a solid budget and the willpower to stick to it. Ignore the siren song of holiday sales and special deals. Instead, enjoy the satisfaction of a holiday with improved finances.

Don't let identity theft stress you out this holiday season.

Credit cards can be an effective way to manage money, improve credit, earn points, and travel with perks if used the right way. Benzinga's personal finance staff provides tips on using credit cards effectively.

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