Holiday Debt Hangover
The holidays are over and a sense of normalcy has returned to your household but now you’re dealing with a Holiday Debt Hangover.
What a great holiday season that was! We have happy memories that will last forever! But, what most of us also have is a pile of receipts from that joyous season.
Your inbox or mailbox (if you’re still into paper statements) is getting full with bills from those wonderful credit cards. All throughout the season, you used your credit cards for gifts, food, flights, hotels, gas and all the other expenses that come with celebrating the holidays. Even the most money-savvy people may be facing the creditors this time of year.
As you sit down and start to conquer the pile of receipts left behind, you quickly realize just how much you spent. The pit in your stomach starts to grow larger with each additional receipt you add to the total.
What can you do when you’re usually in good financial shape, but you’re suddenly facing a month of HUGE expenses?
Tackle your Holiday Debt Hangover with these 7 tips
1) Start with High-Interest Debt First
Always pay your high-interest credit cards first. We hear this statement often, but it’s especially important when you have debt spread across multiple credit cards. You should always make your minimum payments on all cards, but your focus should be on the highest interest rate card. Put any extra cash towards that card because it’s the one that’s handcuffing you financially the most.
2) More than the Minimum Payment
The key to getting out of debt is to pay more than your minimum payment. Creditors are required to identify the length of time it will take you to repay your outstanding balance if you were to make minimum payments only. The amount of time can be astonishing – and is something you should be cognizant of. You may be leaving debt for your kids to pay off when you pass.
Take a look at these examples of outstanding balances on a credit card with a 19.99% interest rate.
3) Transfer Balances to Lower Interest Cards
Apply for a lower interest rate card and transfer the balance from your high-interest card. This will save you on interest and get you farther ahead in debt repayment, provided you keep your payments consistent. Many financial institutions offer introductory rates at 0% interest for a year and all balance transfers. Imagine that you are paying $500 per month in interest alone, that would translate to $6,000 in savings over the course of a year! That $6k you would have paid in interest can be applied to the principal balance of that debt. Don’t lose sight of your end goal – debt freedom.
4) Cut back on non-essentials
If you’re truly serious about curing your holiday debt hangover and paying off all those holiday expenses, you need to cut back on things – even if it’s for the short term. Start with the little things – buy generic versions of the products you normally purchase, carpool, regulate the thermostat in your home. Put your focus on everyday things that can help you save in areas you normally wouldn’t think were that important to focus on. The money saved in these areas should be used to increase your debt repayment and NOT on other non-essentials to elevate your lifestyle.
5) Stop Using Your Credit Cards (at least for now)
When you have a balance on your credit cards and you continue to use them, the interest that you incur will keep growing. This is the behaviour credit card companies thrive on – pay a portion of your balance off and incur some more – this way they get a steady income (at your expense – literally). I’m not saying that you should deny yourself of the things you need or even want. Ensure that you’re not buying things just because they may be on sale and you may need them down the line. Keep in mind that impulse purchases may also be part of the reason why you have that holiday debt hangover.
6) Put your income tax refund/annual bonus to good use
Getting any infusion of cash can create a temptation to go on a shopping spree – don’t do it! Put that infusion of cash to good use – don’t include it in your budget and use it to make a lump-sum payment on that high-interest-bearing credit card. The biggest mistake many people make is to count on that cash each year. Unfortunately, that cash isn’t always guaranteed as it’s dependent on factors outside of your control (for the most part). Consider putting any raises you may get towards paying off your debt. Remember that any money you weren’t receiving previously isn’t going to impact your lifestyle but rather enhance it. Therefore, before you can allow yourself to enjoy those benefits, take that money and pay off your creditors.
7) Plan Now for the Next Holiday Season
You know that the holidays will creep up again in less than a year, and to avoid a holiday debt hangover again next year, start planning now. I like to start the year off with the “52-week challenge” and plan out what approach I will take to achieve it. Personally, I like to use this fund for an annual winter getaway – although that isn’t always the case. Consciously planning for the inevitable will put you at ease when the holidays roll around and you know that you have saved for those expenses.
Put these tips into effect this year and I promise you that next year this time you will be less stressed and in a much better financial position for your future.
Consider being open with family and friends of your goals to pay down debt – it will make things easier when you turn down invitations to go out and may reduce your temptations.
Learn from this year, and avoid a holiday debt hangover next year!