The holiday meals are long digested, and the presents seem like a distant memory when your January credit card statements come flooding in and break you out of a post-holiday stupor. If you spent more than you planned to make the season merry and bright, some budget triage is probably in order to get back on track.
The average American will spend more than $1,000 in holiday expenses, and 42% expect to go at least $500 in debt during the holidays, according to a recent Credit Karma survey. If holiday shopping sent your family’s monthly budget into a tailspin, here are 10 tips to help you get back on track for the New Year.
1. Assess the damage
Now’s the time to take an honest look at how far off course you veered during the holiday buying frenzy. Adding up exactly how much you spent on gifts and entertainment may be unpleasant, but it will let you know how much you have to pay off to get back on track.
2. Get organized
Your financial house may have got a little (or a lot) disorganized in the rush of the holiday season. Clutter can be dangerous to your finances, as it leads to losing important documents like bills. Forgetting about payments due can lead to expensive late charges that will sink you even deeper into debt. Filing all of your financial paperwork in a physical or online budget organizer will help ensure that nothing is forgotten.
3. Set up a pay-off plan
Paying off credit card balances that resulted from holiday spending should be on the top of your to-do list. Interest charges on your credit cards could cripple your chances of getting ahead financially in the New Year.
If you have good credit, you may qualify for a debt consolidation loan. Debt consolidation is the process of combining your existing debts into one loan, which — ideally — has a lower interest rate. Instead of making multiple payments each month to various creditors, you make just one payment, which reduces your monthly payment obligation and simplifies your bill-paying process.
All debt payment methods boil down to two main strategies: the snowball method and the highest rate first or avalanche method.
Pay the highest interest rate first
This method works by organizing your debts by their interest rate. Identify the account with the highest APR. Make minimum payments on all the other accounts and pay off as much as you can toward the account with the highest APR. This method is also called the avalanche method. If you don’t qualify for a 0% APR balance transfer card, this is probably the best way to reduce interest payments while getting out of debt.
The snowball method requires you to pay as much as you can on your smallest debt while making minimum payments on the other ones. Once it’s paid, go on to the next smallest debt until you are debt-free. This method will probably cost you more in interest, but it has the advantage of providing quick wins, which could help you stick with the debt repayment plan. Click here for more tips on how to get out of debt.
4. Do some financial belt-tightening
You may need to get on a financial diet to get back on track after splurging during the holidays. Review your spending and, for the foreseeable future, cut out 80 to 90 percent of unnecessary expenses. This might seem drastic, but remind yourself that you did more than your share of spending last month, and the sooner you get back on track and slim down your financial bloat, the more likely you’ll have a financially healthy and prosperous new year.
Some effective methods for cutting out discretionary spending for the next month or so include leaving your credit card at home and using only cash or a debit card, and opting for low-cost or no-cost entertainment options.
5. Earn extra cash
If your holiday debt is substantial and budgeting and belt-tightening aren’t enough to get you out of debt, consider bringing in some additional income. A wide variety of options exist for making extra cash, such as renting out a room on Airbnb, providing services on Fiverr, or driving for Lyft. You can find more options on our page with a list of side hustle options.
6. Sell or return unwanted presents
The chances are that some of your well-meaning friends and family gave you at least a couple of presents that you don’t want or need. Return or sell these gifts and put the money toward your holiday debt. Many stores will give you cash back if you have a gift receipt. If you don’t, they’ll often give you store credit in the form of a gift card. You can resell the gift card and others you don’t want online for cash. You can also sell items online at retailers like Amazon Marketplace, eBay, and Craigslist.
7. Team up for support
Just as you would seek support for a New Year’s exercise and diet plan, team up with a budget buddy to keep you on track. There is a good chance that a friend or family member also overspent during the holidays and wants to get out of the red as soon as possible. Having someone to call gives you a sounding board when budgeting gets challenging. You can compare progress with one another and follow financial blogs that offer helpful advice. Agree to talk at least once a week, which will help ensure that you both stay within your budgets and pay off your holiday debt.
8. Devise a gift spending plan
The holidays aren’t the only time you’ll be tempted to spend on gifts. Birthdays and occasions like Valentine’s Day may cause a knee-jerk reaction to overspending, so it’s important to be aware of that fact and be ready. Avoid making the same mistakes you made last month by devising a spending plan of action ahead of time. Budget your gift buying purchases and shop ahead of time to get the best deals.
9. Don’t forget your emergency fund
Holiday debt is no excuse for not having an emergency fund. If you think a rainy day fund can wait until you’re out of debt, consider how you got into debt in the first place. If you had savings to draw from, you’d be in the black right now. A good way to contribute to an emergency savings fund while you’re paying off holiday debt is to save a small amount via an automatic savings plan. Saving even 2-4 percent of gross income each month until holiday debt is paid off will give you the money to cover future emergency expenses.
10. Avoid a repeat performance
Start saving so that you have a holiday nest egg to use next December. Determine how much you need to save every month by adding up what you spent last year and dividing by eleven. The average American spends $1,000 on holiday expenses, so you may want to consider saving $90 a month or $25 a week.
Suffering from a holiday spending hangover happens to the best of us. Rather than kicking yourself for overspending, stay positive, and stick to these get-out-of-debt tactics, and you’ll soon find yourself well on your way to a prosperous new year.
If you are facing an overwhelming amount of debt, a debt relief firm may be able to help you settle it for less than you owe. Compare your options and find a debt relief firm using our comparison page.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.