May 17, 2022 | 01:53 PM

Savings Tips

13.12.2012How To Manage And Reduce Your Personal Debt This Holiday Season

Holidays are times to take a break from work, spend time with family and friends

Panos Mourdoukoutas, Forbes.com

Holidays are times to take a break from work, spend time with family and friends, head to the shopping mall, log on to on-line retail sites – and accumulate a lot of bad debt, borrowed money to buy things you don’t really need in the first place.


But you won’t fall into this trap, if you do three things:

 1. Change Decision-making Style

As I discussed in a previous piece, bad debt accumulation is a matter of decision-making style. As it turns out, people who accumulate a great deal of bad debt tend to think with the emotional side of their brain, which often goes wild.  This can lead to all sorts of bad decisions, including the amassing of bad debt.

Fortunately, there is another side of the brain, the rational side, which understands interest rates and financial charges. Rational thinking is reasoning, usually fostered by traditional economics, which teaches consumers how to ask the right questions.

 2: Ask the Right Questions

Rational consumers make decisions by taking a close look at their preferences and constraints. Preferences are the ranking of needs and priorities. Constraints determine what consumers can afford, and what they cannot; the trade-offs between spending more on one product and less on another; spending more today through borrowing and less tomorrow, as the borrowed money must be repaid with interest.

Before grabbing a piece of merchandise and rushing for the cash register, rational consumers always ask three simple questions: “Do I need this piece of merchandise?” “Is the price right?” “Is this product the best use for my money?” Sounds simple, doesn’t?

Step 3: Turn-off the Emotional Buttons

“Emotional buttons” are switches that let the emotional brain take charge of consumer decisions. One such button is “free offers” from marketers, that trigger consumer impulses. Free magazine offers, for instance, prompt consumers to subscribe to magazines they rarely read.

Another button is the “limited time sales offers” that create an urgency to buy certain merchandise. Black Friday offers, for instance, have consumers too concerned with the prospect of missing out on sale opportunities; they end up buying merchandise indiscriminately, irrespective of the need for it, and its priority.

A third button is a “charge it” sign that prompts consumers to use plastic money rather than cash, which eases consumer decisions.

How can we shut these buttons off? What does it take?

We should close our ears to the song of the marketing Sirens. If we don’t need another pair of shoes, we shouldn’t visit the local shoe store searching for special offers. If we don’t need another electronic gadget, we shouldn’t camp outside Best Buy (NYSE:BBY) or Wal-Mart (NYSE:WMT); and we should try to buy merchandise with cash, so we can balance the pleasure of buying a piece of merchandise with the pain of emptying our wallet.

The bottom Line: Freedom from bad debt isn’t an endowment from heaven; it isn’t guaranteed by the Constitution. It is a daily exercise that helps us learn how to use the rational side of our minds when we make shopping decisions.


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