If racking up credit card debt over the holidays was simply unavoidable, now would be a great time to put together a plan topay off that debt as quickly as possible. Americans were expected to spend an average of $646 for gifts this holiday season, according to a survey by American Research Group, and many consumers chose to put some or all of that budget on their credit cards. If you were one of them, you don’t have to let a holiday spending hangover ruin the new year.
Here are some tips to deal with that holiday debt load and look forward to a less-stressful year ahead.
1. Tally it up. Make a master list of all the debt you accumulated just over the holiday season. Itemize your credit card statements to calculate how much you ended up spending on gifts, holiday décor, food, entertaining, and other holiday-related expenses. Knowing what this figure is can help you set some realistic goals for paying it off and also give you a better idea of how much your household spends, on average, during the holiday season.
2. Put together a realistic payoff plan. How much can you take out of the monthly budget specifically for credit card payments? Take a good look at your budget–updating it if needed–and set a goal amount you need to set aside for credit card payments based on the numbers calculated in #1. Remember that you need to make much more than the minimum payment to make a dent in your debt balance. If you can’t see yourself paying more than the minimum, start trimming some other expenses to free up funds. Remember that a few temporary cutbacks now will help you save enough to pay down more debt faster.
3. Consolidate. Take advantage of 0% interest transfer credit cards and promotional rates so that you can reduce total interest payments on your debt. If you know you won’t be able to full amount of holiday debt accumulated within the next two or three months, spread it out over six or twelve months at a no-interest rate and pay down that debt as quickly as possible. Just make sure you’re aware what the interest rate is after the promotional period is over so you don’t end up paying back all of your savings with a super-high interest rate.
4. Put a halt on credit card spending. Make sure family members who share credit card accounts are aware about the current debt load and let them know you’re working toward becoming debt-free this year. This means everyone has to stop using the credit cards for day-to-day purchases. Set some limits on credit card spending for all account holders, and check your credit card statements regularly to make sure any charges are paid off well before the billing period ends.
5. Tap into another income stream. This is easier said than done, but if you’re highly motivated to pay off that holiday debt as quickly as possible, you could use another source of income to get rid of debt in one quick sweep. Consider taking on a part-time job on weekends or even turning a hobby into a side business. Be creative and think of a few ways you can generate some income quickly. Selling slightly used items on auction sites could also help you generate some quick cash and get that debt paid off well before the next holiday season.
6. Pay off debt with bonus money. If your holiday bonus check just came in or you are filing your taxes early and are getting a refund, use that money to say goodbye to holiday debt as quickly as possible. While it’s tempting to put bonus checks and tax refunds into a savings account or make a big purchase, stick to your debt payoff plan and think about how good it will feel to be relieved of this debt load. Don’t just carry this burden on into the next holiday season and repeat the whole cycle. Take care of the debt with any extra cash you have so you can start over fresh in the New Year. Paying off that debt quickly will relieve some financial anxiety and make it easier to budget other sources of income you have throughout the year.