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i would just tell them the truth -- it's too expensive. yes, they'll be upset, but tell them that you hope you can get out there as soon as you have a little more money or ticket prices go down.
Oy. Yeah, I agree with Kitzy. I would also consider acknowledging that you realize you cancelled on another trip, but money is just too tight right now. However, be prepared for someone to offer to chip in.
I agree with the PP's here. Just be honest. Sounds like you guys have and are doing all that you can.
You should def not pay but I have to ask... didn't you consider this before? Flying cross country and Christmas time isn't cheap. Especially 3 weeks before Christmes. EEK!
No one can argue with the fact that you don't have the $ to go out there. Flying is ridiculously expensive and yes, maybe you could have bought your tickets in advance at a cheaper price, but if you don't know your schedule in advance that poses a problem since changing your flights results is a huge $ penalty.
So I would just announce that you're really sorry but you can't make it out there this year due to funds but you will hopefully be out soon once you save up enough $.
@kitzy: It's nt so much a problem with telling them the truth - it's that they probably won't care and will feel free to call us up and tell us how awful we are for not coming OR assume we're lying about the money to get out of makign the trip.
If it were just his parents doing this, fine. But his youngest siblings will be legtimately disappointed, and we don't relish hearing about how we let them down from their parents for the next, oh, forever.
@JrzyGurl: Yes. We did consider this. We had even tentatively picked the flight and budgeted for the tickets.
Trouble is my husband has law school exams, and doesn't receive a final schedule of when they'll be held until late November. Turns out he has a test on the 23rd, and the price difference between our proposed departure date (21) and the new date (23) is large enough that it would've been prohibitive no matter when we tried to book a flight.
(And, no, the exam can't be taken on another day.)
I agree also, be honest and tell them it's too expensive... My IL's also live on the West coast and last year they offered to pay for half our flights, this year we are going to my parents and can drive... They have no grounds to be upset if it's because of money, flights are stupid expensive this year. I'm sure they will be disappointed but they should definitely understand. What about making a long weekend trip after the holidays when flights are less in cost?
@MissHelen: If they chip in, then we'll definitely go. This is unlikely for a number of reasons, not the least of which being the massive expense of the divorce and their own spiralling debt concerns.
When I read your post title, my immediate answer to your questions was "with song and interpretive dance."
But seriously....I am going to go against the grain...but I say spend the money and go. I really do understand the value of paying of CC and reducing debt, but it sounds like you don't see his family very often. It is easy, especially at the end of the semester, to want to avoid all stress possible over winter break. But in the end, hopefully your time spent with his younger siblings and parents will be much more valuable than saving the $1000. Its only money anyways.... 
*sigh*
I think you guys are right... It just reeeeeeeeeally sucks. I hatehatehate disappointing people, and want to protect my husband from being made to feel terrible.
@Rock Hugger: "with song and interpretive dance."
I'm thinking red and green leotards with gold lame accents, glitter covered banners soaked in egg nog and a new composition incorporating elements of popular Christmas carols and death metal hits of the 90s...
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I'm going to jump on the sticky holiday situation bandwagon and ask for the hive's input on how to (potentially) break some unfortunate news.
Here's the deal: My husband and I had initially planned to spend Christmas with his family. They live, for all intents and purposes, on the opposite coast and have younger children, so we don't see nearly as much of them as we do my parents and brother, who are geographically closer and have more freedom to travel. We also see more of my family because, well, they're generally a bit more stable. My ILs are, as individuals, nice people, but together they are a raging ball of hideous dysfunction. And that was true even when his parents weren't getting divorced.
This new and exciting family dynamic, combined with a hellacious schedule, has made my husband rather unenthusiastic about the proposed trip, particularly as it has become clear over the past few weeks that the expectation is that we will somehow manage to be all things to all people while we're there. (This happened prior to our wedding, too. My poor husband was run ragged by parents and siblings, all of whom seemed to feel that he was not giving them adequate attention or sufficiently attuned to their numerous and varied grievances with one another.)
Last night we were finally able to get a handle on schedules (my brother was unexpectedly inthe hospital last week and the world sort of stopped for a bit), and discovered that to fly out to his family on the only days available to us is going to run us well over $1000.00. This is money that we don't have, and my husband is strongly opposed to putting the tickets on a credit card as we're trying to pay down all of our consumer debt. He also feels that he doesn't owe his family this holiday and is preemptively pretty angry at the idea that they may be upset if we don't show.
I see his point, but think that at least some of their feelings of disappointment might be justified (we've had to cancel one previous trip because, again, tickets are extremely expensive). Seeing as it's his family I'm going to defer to what he wants to do, but I'm wondering if there's a way to break this to them that minimizes the potential for upset?
Or do you guys think we ought to go anyway, money be damned?