4 Tips for Recovering From Holiday Debt
Now that the holidays are winding down, you’re likely staring in disbelief at a pile of receipts from gift purchases. If you overdid it this year, you’re not alone. A recent survey conducted by Magnify Money found Americans added an average of $986 in holiday debt to their already growing financial load. This is roughly $181 more than predicted by the National Retail Federation’s Holiday Consumer Spending Survey. Not surprisingly, the Magnify Money survey revealed credit cards were the most common form of debt.
Approximately 52% of respondents said they used a bank or credit union credit card to pay for their holiday purchases, while 30% used a store credit card. Furthermore, some consumers turned to loans to finance holiday shopping. Roughly 8% took out a personal loan while 6% turned to payday and title loans. If you’re among the consumers who went way over their holiday budget, you can still do a few things that may help you recover. Here are some tips for getting a handle on holiday debt.
1. Develop a repayment strategy
Add up your holiday debt and then organize a plan for paying down the total. Set a goal for paying off the debt within a certain number of months (for example, five months), instead of just paying the minimum listed on your credit card statement. Divide the total by the amount of months and use this monthly dollar amount as a goal that you’ll work toward paying each month until the total debt is paid. Call your credit card issuer and request a lower monthly interest rate. If your request is granted, this will help you pay down the debt faster, provided you refrain from charging new items. A debt payoff calculator can help you stay focused as you move toward your goal.
2. Stop the spending cycle
Once you’ve racked up significant debt, it’s tempting to just keep spending. Resist the urge to give in to defeat and just keep charging out of frustration. You may reason that you’ll never get out of debt, so you might as well continue to charge purchases and pay the debt when you’re able, but this is a destructive approach. Instead, cut back on spending and look for ways to save on recurring expenses. Resolve to use coupons and search for deals. Also switch from name-brand items to generic when possible. It may take a bit more effort and some time to adjust to a new way of living, but these small changes will help you whip your finances back into shape.
3. Add income
When you get to a point where there is just no more fat to cut from your budget, you will have to look for ways to increase your monthly income. Sometimes using coupons and shopping for deals is not enough. An extra cash cushion may be necessary to help you meet your debt repayment goal. Some options are starting a side business or applying for a part-time job.
4. Start saving for the upcoming holiday season
Once you have finished paying down your holiday debt, start setting aside cash for your next round of gift purchases. Do your best to avoid using credit—or worse, taking out a loan–so that you can afford holiday presents. The last thing you want is to dig yourself into another debt hole and then have to start all over again. An even better approach to holiday shopping is to avoid spending money on gifts altogether.