When you overspend during the holidays, that cool iPhone X and Amazon’s Echo smart speaker aren’t the last gifts you get to unwrap. Weeks after the presents under the tree are distributed, the last gift to arrive is that stack of unopened bills, and, unlike your least favorite stocking stuffer, you can’t return these presents with a gift receipt. The balances found within show a debt that can hang around months after Old St. Nick has made his delivery, and they take a lot of hard work to undo.
Nothing can taint the fond memories made over the holidays quite like the financial reality of your Christmas overspending. If you’re faced with several alarming credit card statements in the new year, there’s no better time to tackle your holiday debt. Take advantage of these quick tips to help pay off your debt as quickly as possible.
Always pay the minimum payments
Though this suggestion won’t wow anyone with its ingenuity, it will provide the foundation of any successful debt-fighting plan. It also happens to be one people often disregard. The minimum payment is a very important number on your bill, so make sure you take note of it. If you still receive paper bills, use a highlighter to underline this figure. If you pay your bills primarily online, then authorize the account to withdraw the minimum payment automatically from your linked bank account.
Skipping this payment will extend the amount of time you spend in debt, as you’ll get slapped with a penalty late fee that will increase the interest accrued on the account. If you make a pattern of missing payments, this can spell disaster for your credit history.
Use a budget to help tackle these minimum payments — and more!
There’s a huge chance you’re dealing with debt now because you didn’t use a budget during your holiday shopping. It’s okay; you aren’t alone. According to Nerd Wallet’s 2017 Consumer Holiday Shopping Report, 27 percent of Americans shopped during the 2016 holidays without a budget, and 24 percent of them shopped their way into debt.
The important lesson here is that a budget is a necessary financial tool when accommodating any kind of spending, including preparing for the holidays and undoing holiday debt. Make up for your lack of budget in December by equipping yourself with a budget in the new year. (If you aren’t sure how to make an effective one, there are tons of helpful resources online). Make sure you work hard to find unnecessary spending habits. Once you cut them out, you can reroute the money you’d usually spend on them towards your minimum payments. Work really hard and you might be able to contribute more than just the minimum.
Prioritize your debt by APR
Once your finances can accommodate larger payments, it’s time to rank your bills. Some financial advisors recommend people focus on the credit card with the smallest balance first. It’s easier and faster to pay off and seeing debt disappear quickly keeps people motivated to continue budgeting. It also frees up the money you’d normally spend on its repayment faster than if you focused on larger debts (which would take more time to repay). That extra money can go towards the next smallest bill and double down your efforts.
If you used your cards as equally as you spoiled your kids during the holidays, there’s another school of thought that can help you. Other financial advisors recommend turning your focus on the debt with the highest interest rate, as these grow larger each day thanks to compound interest.
Take the time to prioritize your credit card bills, lines of credit, and personal loans according to the system that works best for your situation. Then update your budget to reflect your priorities.
Plan for next Christmas now!
It’s unlikely you want to think about holiday shopping now when you’re still dealing with the consequences of the last round of festive celebrations, but planning early is the only way you can avoid gaining more debt next year.
Buried deep beneath your mountain of bills, it may be hard to see a day when you can put some cash towards next Christmas, but that day will come eventually. Recast a keen eye towards your spending habits to see if there are any more unnecessary purchases you can eliminate. If there’s nothing to reduce, then try keeping bill payments in your expense budget long after you repay them. Once a bill is paid off, don’t spend all that money you free up on unnecessary things. Funnel some of it towards a savings fund for the next holidays.
In the meantime, research your options. Search out ways you can stretch your dollar when preparing for the holidays, and learn about the alternatives to credit card debt. Try searching easy and affordable homemade gift ideas, so you aren’t tempted to spend at the till.
The bottom line
The work ahead of you isn’t going to be easy — certainly not as simple as it was to tap, swipe, or sign your John Hancock. It’s going to be hard to commit to a strict budget and hard to stay away from spending temptations. You may have to change your lifestyle entirely by looking for another job, finding a better paying career, or speaking with a financial advisor about debt consolidation. Do what it takes to get a handle on your debt, and make sure you prepare properly so this doesn’t happen again.