With three weeks until Christmas and 10 days until Hanukkah begins, 'tis the season for excessive spending.

The average Canadian will spend $1,310 extra over the holidays, according to a release to be issued jointly this week by Pollaris Inc. and the Retail Council of Canada. This breaks down to $680 on gifts and decorations and $630 more on non-gifts like clothing and travel, according to Roland Merbis, associate vice-president for Pollaris.

While the total figure is slightly down from last year's $1,357 per person, retail sales this year are tracking 7% higher, says Diane Brisebois, president and CEO of the Retail Council.

In previous years, pollsters found Canadians feel pressured to spend more than they would prefer over the holidays. Whether from the bombardment of commercial messages or the unspoken expectations of families and friends, the "financial psychology of Christmas" can be debilitating, especially for those whose finances are already stretched.

Pollaris found a third were anxious about how they will pay the bills early in the New Year. Keep in mind January is also when other one-time extraordinary expenses often arise: notably automobile insurance.

Despite anxiety over finances, half of Canadian families do not save for this most predictable of seasonal expenses.

Bankruptcy trustees have long described a "Christmas effect" which manifests itself in a seasonal high bankruptcy rate for consumers every March.

The painful consequences of failing to handle debt is well depicted in Gail Vaz-Oxlade's popular TV show, Till Debt Do Us Part.

Make no mistake; the holiday season is a war, financially speaking. To win it you'll need a battle plan, budgeting how much you'll spend and where the money will come from.

Only 44% make a budget but as the old aphorism goes, failing to plan is planning to fail. Think about how you'll feel when the bills come due in January. Digging yourself out of a hole is no way to begin the New Year.

"One of the biggest mistakes people make at this time of year is to only budget for gifts," says Laurie Campbell, executive director for Credit Canada.

"What about all the decorations, additional food, alcohol [and] party clothes?"

Other extra costs include more eating out, movies, New Year's Eve, and end-of-year charitable donations.

So before setting out for the shopping malls, sit down, put another log on the fire and make a list. Jot down the "maximum" you intend to spend on each child and loved one.Given the popularity of expensive tech toys like iPods, cellphones and digital cameras, many will be tempted to spend more than the average figure cited by Pollaris.

Once you've come up with a grand total, add taxes and perhaps a 10% fudge factor. Then compare the result to the current balance in your chequing account. Can it absorb all normal day-to-day living expenses plus another $2,000? If so, perhaps you can get by with a debit card that accesses this account.

But if your current balance can't take this additional hit, consider what to do about it. Assuming that playing scrooge won't fly with the kids, resist the temptation to count on credit cards to bail you out. These are deadly plastic boomerangs that will come back to haunt you when you least welcome it.

If credit is your only recourse, limit yourself to a single card and take the standard precautions against pickpockets and identity thieves. The same goes for debit cards, particularly keeping PIN numbers from prying eyes. However, the fallback of drawing on a medium-interest line of credit is preferable to racking up high-interest credit card debt.

But before taking such desperate measures, consider whether you already have alternative sources of cash, such as Canada Savings Bonds in a safety deposit box. Or perhaps you have money market mutual funds or other liquid investments held in a non-registered plan. These may be paying out modest amounts of interest that will ultimately be taxed -- but the interest will be far less than the double-digit rates any credit card will charge. Better to draw down on cashable liquid investments than fall prey to the plastic wealth destroyers.

However, I wouldn't go so far as to liquidate registered investments since any funds you withdraw from RRSPs will be taxable.

In short, have a merry but solvent holiday season.
 

* Material reprinted with the express permission of: "National Post Company", a Canwest Partnership.