Start now to repair broken budget

— -- So you've blown your budget buying Christmas gifts for family, friends and even the neighbor's dog.

That's little surprise. It's the American way to spend and spend. In an October survey by BIGresearch and the National Retail Federation, consumers said they planned to shell out an average of $923.36 during the holidays, a modest 4% increase over last year but up a steep 24% since 2003.

The problem is that the trauma of overspending during the holidays can last long after the last of the eggnog has been chugged and the wrapping paper stowed away. It can limit how often you're able to take trips next year. Or eat out.

That's why you should repair the damage as quickly as possible. That's especially true in a shaky economy, with housing prices across the country falling and energy prices surging.

Just in time for 2008, here are 10 tips for getting financially fit.

•Take stock of the damage.

Check your bank and credit card statements online. Once you find out how well you fared in sticking to your holiday budget — assuming you had one — you can either pat yourself on the back or move quickly to get rid of the debt.

In the mayhem of holiday shopping, many people lose track of how much they've charged to their credit cards or withdrawn from their bank accounts.

That partly explains why credit counselors typically see 40% more customers in January than in any other month, says Dave Jones of the Association of Independent Consumer Credit Counseling Agencies. This year, Jones expects "more (customers) than usual" because, despite the uncertain economy, "people are still pretty optimistic. We're going to see some high spending."

•Tackle debt.

If you've racked up debt, map out a plan to get rid of it as early in the new year as possible, even if that means temporarily taking on a second job or forgoing the Starbucks coffee each day.

Enlist your family's help in brainstorming ways to trim expenses until you're back on sounder financial footing. You could watch television instead of going to the movies, return unwanted Christmas gifts or just start a new tradition of Sunday brunch at home instead of at the diner.

For 101 other ways to cut small and big expenses, check out financial planner Sue Stevens' November column, entitled "Trim Expenses While You Trim the Tree," available under the personal-finance tab on Morningstar.com.

•Track and control spending.

It'll be hard to whittle down debt if you can't control spending. Here's how to get a grip: Write down everything you spend in a month. You might be surprised by how much trips to the beauty salon and beers with friends add up.

"Until you know where the money is going, the money is in charge of you; you're not in charge of (your) money," says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling. "It's the little money that we do not keep track of that ends up eroding our budgets."

•Set up an emergency fund.

Financial planners suggest you keep three to six months' worth of expenses in a money market or savings fund. This cash can be a godsend when your car breaks down or you have to buy pricey last-minute plane tickets for a funeral. And the spare money means you won't have to put unexpected expenses on high-rate credit cards and derail your financial health.

•Seek lower credit card rates.

If you have good credit and pay bills on time, you can probably get a lower rate on your credit cards just by asking. Card issuers will often agree to cut your rate if they fear losing your business.

If you have poor credit, though, it might not be so easy to secure a lower rate. At a time when financial institutions are becoming more selective about extending credit, someone "carrying $8,000 and making minimum payments probably won't have a whole lot of latitude, because their risk profile is viewed differently," says Greg McBride, a senior financial analyst at Bankrate.com.

•Make your money work for you.

This means finding the highest-yielding bank accounts; check rates on www.Bankrate.com. If you're wedded to your bank, keep your checking account there, but consider moving your savings to another institution. Many Internet banks — such as ING Direct and EmigrantDirect.com — pay higher rates than traditional bricks-and-mortar institutions.

Because the average interest checking account today pays just 0.3% — far lower than the rate of inflation — letting money pile up in a checking account leads to a loss of buying power, McBride points out.

•Set up automatic transfers to savings.

Doing so makes it easier to save for an emergency fund, your child's education or your retirement. It's money that comes directly from your bank account, so you won't notice it. If you don't see it, you can't miss it. It's a good idea to increase your savings deduction each time you get a raise at work.

•Protect your credit score.

Pay down your holiday debt as quickly as possible.

Payment history accounts for roughly one-third of your credit score. That score can determine rates on everything from car loans to mortgages, according to Fair Isaac, creator of the widely used FICO score. FICO scores range from 300 to 850, with 850 the best.

"What people don't understand is that if they do not handle the repayment of their holiday debt well, that can negatively affect their credit score, which then impacts their future buying power," Cunningham says.

Also check your credit report for errors, which can lower your score. Under federal law, you can get a free credit record from each of the three bureaus — Experian, Equifax and TransUnion — once a year. Go to www.annualcreditreport.com.

•Review your insurance.

One way to save on auto and homeowner's insurance is to increase your deductible. Raising your deductible on your homeowner's insurance from $500 to $1,000, for instance, could save you up to 25% on your annual premium, according to the Insurance Information Institute.

With life insurance, a common general rule is to buy insurance equal to six to eight times your annual income. Yet, relying on that often results in people buying too much insurance, McBride says.

Take, for example, two consumers: one who makes $150,000 a year and whose kids are grown, and another who makes $35,000 a year and has two young children. Under the common guideline, the higher-income person would end up buying many times more insurance than the lower-income consumer. But it's the lower-income person with young children, McBride says, who actually needs more coverage.

Figure out your life-insurance needs with calculators at Bankrate.com and at lifefdn.org, the website for the Life and Health Insurance Foundation for Education, a group made up of insurance agents.

•Save now for next Christmas.

The week or so after Christmas, Cunningham says, is a perfect time to reflect on how much the holiday season actually cost you: factor in not only gifts but also travel expenses, entertaining and shipping costs. This will give you a savings goal for next year.

Let's say you spent $1,000 this year and you normally start shopping for the holidays in November, so you have 10 months to save. Set aside $100 a month and put it into a separate account for use then.

Don't have enough discipline to do this on your own? Check out the "Christmas Clubs" of some banks and many credit unions. You can sock away money throughout the year in savings accounts — which pay modest interest, if they pay interest at all — then get the money back in a lump sum just in time for holiday shopping.

The Credit Union National Association says about three-quarters of the nation's 8,300 credit unions offer Christmas Club accounts. However you save, the main thing, Cunningham says, is to "separate that money out, so you can have a debt-free Christmas next year."