4 Steps To Avoiding A Spending Hangover

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 percent 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 percent smaller. That's because federal income tax rates for many people will rise by 3 percent, and a 2 percent temporary reduction in Social Security payroll tax will expire.