Okay, so you went a little overboard with your holiday spending this year. There’s no shame in that! One gift led to another, and you just kept putting them on your credit card. We’ve all been there, done that, and paid too much for the t-shirt.
Now, there’s a problem. Namely, your bills are going to start piling up faster than you’d like. The bad news is you can’t avoid them. The goods news is that post-holiday debt is totally manageable. Ready to get started? Take a look at our quick and useful guide below.
The first step is to assess the damage
Painful as it may be, you need to dig into that pile of bills and see where things got out of hand. Most financial institutions and credit card companies will organize and categorize your expenses. Use these statements to figure out where your spending went off the rails. If you have a partner, don’t forget to include them in this process. Coordination and communication can go a long way toward fixing your spending habits.
Next, take a look at those areas where you spent too much, and make a plan to help yourself cut back. Look at your plans for the Spring and Summer, and where you might be able to trim the budget. Picking two or three monthly expenses you can do without, at least for the time being, can help you get your debt under control again. It may not be fun, but it’s not forever.
Interest is not your friend, and it has got to go
If you’ve got big credit card bills with high interest rates, these have got to be the priority. You need to get aggressive with those payments. Try to pay off the cards with the highest interest rates first, pay more than the minimum, and always pay on time.
If you’ve got a tax return coming and there’s a lot of debt to pay off, consider putting your return toward your payments. It can be hard to get ahead on your credit card bills, but a big chunk of money (such as your tax return) can really help you out. It might sound depressing, but living with massive amounts of debt is worse.
Once you pay off a card, you may be tempted to close that account. This can actually hurt your credit score. When you close accounts you actually have less available credit, which prompts the credit agencies to lower your rating. But you could lock that card up, or cut it up, so that you aren’t tempted to use it.
What to do when your debt is worse than you thought
Did you go more than a little overboard? When debt piles up, it’s easy to feel like you’re drowning. Here are some options to get some help and keep yourself afloat:
If you have money coming in, consider getting a personal loan to pay off your credit card. Credit card rates tend to range from 13-25%, while the national average for personal loans is about 9.5%. (Check out our personal loan page to see our current rates.)
A lower interest rate will save you money in the long run. While this may not be a perfect solution for everyone, especially in the current pandemic. Always be sure to speak to a financial advisor before making these kinds of decisions.
Another possible option to reduce that interest rate is a VISA® Balance Transfer, which lets you transfer your high credit card balance to a new card with a lower rate for 15 months. This can help you make more aggressive payments and get free of that awful interest more quickly. Just be sure to always read the offer carefully, and ask questions so you know how it works.
Debt under control? It’s time to make a change
Prevention is usually better than a cure. The best way to deal with holiday spending debt is to make sure you’re prepared ahead of time. This means changing your spending behaviors and budgeting ahead.
For some people, the easiest way to avoid big holiday debts is to buy things throughout the year. Those purchases don’t hurt your wallet so badly when they are more spread out. Plus, sometimes you can take advantage of sales. This even works with bigger purchases. By spending money in smaller amounts, you can be better prepared to make your payments on time.
You can also try saving a little bit of money every month, so that you have a bit more money at the end of the year. Our Holiday Club helps members do just that, and your money gets re-deposited into your account at the beginning of November.
Finally, remember when we said not to cut up your credit cards? Well, closing accounts is less painful when you’re not struggling under loads of debt. When you’re debt free, that’s the time to think about what cards you have and why.
The important thing is to change the way you approach holiday spending so that you’re not stuck with a big credit card bill in January. This means you have to make sure you can afford the purchases you do make, and you should never buy anything big without a plan to pay it off. Follow this guide, and you should see your progress grow and your stress melt away.