Tips for Overcoming Holiday Debt

It’s been a whirlwind of a year that has included isolation and unprecedented changes to the way we live. And some consumers turned to shopping this holiday season to fill an emotional and physical void that many of us are feeling.

In 2019, Americans took on an average of $1,325 in holiday debt, according to MagnifyMoney’s annual post-holiday survey. Unfortunately, this year’s circumstances and anxieties easily led to more overspending, meaning holiday debt could be worse if we didn’t check ourselves and curb the spending.

Here are some tips to help overcome holiday debt and set up 2021 for success.

Stop the bleed: Triage your finances now

If you took on debt to pay for your holiday shopping, you need to make some immediate damage control efforts.

Assess the situation and rebalance your budget. You can’t hide from your debt. Instead, you need to look at your budget and account for any new debt. You may need to pull from other discretionary spending categories (e.g. entertainment or dining out) to rebalance your budget. Or tap into a miscellaneous fund, like a vacation fund, that you won’t immediately need.

Write out all your necessary expenses. Necessary expenses only. This means food, housing, transportation, and limited clothing. See how that compares to your income. Take what’s left over from your income and decide what you want to send towards your debts and what you want to use to make life a little more comfortable.

The more you can send to your debt the faster it will be paid off.

Ditch your credit card. Credit cards can get you into hot water even with the best intentions. Vow to stop using credit cards for everyday spending and stick with your debit card only. Make your new mantra: If I don’t have the money, I don’t need it.

A few intentional self-corrections can put you on a better financial path moving into the new year.

Get a game plan: Pay off your holiday debt as quickly as possible

Last year’s MagnifyMoney study found that 78% of respondents didn’t plan to pay off their holiday debt by January. And 15% only planned on making the minimum payment, which means it could take years to pay off a short-lived celebration.

Make a detailed plan to pay off your holiday debt as fast as you can.

Some people find that paying off their smallest debts first motivates them to continue to pay off more debt. This is known as the debt snowball method.

Other people prefer to save as much money as they can by tackling their highest interest debts first. This strategy is referred to as the debt avalanche method.

Both methods are effective. So, choose a plan that matches your level of discipline and motivational habits.

Here’s how to stay motivated as you work towards your financial goals.

Regardless of what your holiday debt payoff plan looks like, you should always call your credit card company and ask for a lower interest rate temporarily. You can do this at any time during the year, but it can help accelerate your holiday debt payoff journey.

Think ahead: Be prepared for next holiday season

Holiday debt can be a vicious beast to conquer, especially if it has become an ingrained cycle over the years.

Avoid putting yourself and your family in this situation next holiday season by preparing ahead of time with these simple strategies:

  • Set a 2021 holiday budget and start saving for it as soon as this year’s holiday debt is paid off.
  • Participate in a fun and motivating savings challenge, like the 52-week savings challenge. Or decide to do something like the $5 challenge where you stash away each $5 bill you come across all year.
  • Make a list and buy gifts throughout the year to spread out the cost. Just be sure to remember where you hid them. And avoid buying more gifts for the same person as the holiday season draws near.

Don’t let the stress of holiday debt paralyze you into making more unhealthy financial decisions.

Overspending is a learned habit. But so is saving and budgeting. The more you practice sticking to a budget and avoiding debt, the easier it becomes.

This holiday season is the perfect time to face your debt head-on and start making some changes that will benefit you for years (and holidays) to come.

Summary

Overspending during the holidays is a common occurrence. Instead of beating yourself up, make a plan to pay off the debt and get back on track.

Make a budget, decide what order you want to pay off your debts in, and get to work. And don’t forget to start planning for next year.

Share via:

Related Posts

best couponing apps
Financial Literacy

Best Couponing Apps to Save You Money

You don’t have to be an extreme couponer to save money on your in-store and online purchases. Today’s couponing apps make saving easier than ever, with some providing automatic alerts based on your location and tailoring their offers to match your favorite retailers.

Share via:
Financial Literacy

Top Debt Repayment Tools According to 3 Experts

Paying down your debt will require organization and consistency. At times it will feel difficult but with the help of these tools, you will be able to see light at the end of the tunnel and find ways to reach your goals with quickness and clarity.

Share via:
Financial Literacy

How to Create a Budget: A More Personalized Approach

Budgeting is all about trial and error. It usually takes a few months to figure out what type of budget fits your needs and personal style. Once you’ve nailed down what works for you, it might take a few additional months to really dial in your spending versus your income.

Share via:

0 Comments

Leave a Reply

Follow or subscribe to the

Plutus Awards Podcast

Join us for #plutuschat on Twitter

You must register here to qualify for the giveaway!

Note: There are no currently scheduled PlutusChats.

Subscribe to the

Showcase

Excellent Financial Content Delivered to You