Master Debt

5 TIPS FOR CURING A HOLIDAY DEBT HANGOVER

Are you worried about overspending or racking up debt during the holidays? In 2016, the average consumer who used credit cards or loans for holiday spending began the new year with an average of $1,003 in new debt.

Going over your holiday spending budget can leave you staring down a big credit card bill in January. But don’t panic just yet. All you need to recover from your post-Black Friday shopping madness debt hangover is a plan.

How to Deal With Debt After the Holidays

Curing the holiday debt blues may not happen overnight but developing the right habits can help you avoid an overspending repeat.

1. RECOGNIZE WHAT LEAD TO OVERSPENDING

First things first, ask yourself what caused you to end up with holiday debt. Did you shop without mapping out your holiday budget beforehand? Did you give in to impulse purchases? Did you end up paying more for certain items because you waited until the last minute to buy?

Getting to the root of your overspending can put your debt hangover in perspective so you can make different choices the next time the holidays roll around.

2. GIVE YOUR CREDIT CARDS A TEMPORARY BREAK

When you’re caught up in the holiday shopping frenzy, you may not realize what you’re charging until your statement arrives. Going back to basics and using cash or debit for spending can keep you from adding new purchases to your holiday debt total.

While you’re shelving your credit cards temporarily, look at the annual percentage rate you’re paying. Consider transferring the balance to a different credit card with a 0% APR for 15 or more months. We’ll get into how to create a realistic plan for paying off holiday debt without throwing money away on interest a little later on in this article.

3. START FRESH WITH YOUR BUDGET

Once the holidays are over, you’ll likely get back to your regular spending routine. Reviewing your budget at this time is key to figuring out how to deal with debt.

Start with your fixed expenses, like housing and insurance, to see if there’s anything you can trim down. Then, go over your variable expenses — your utilities, transportation, entertainment, going out with friends or personal care — to see where you can cut down on costs.

These are the expenses you have more control over. You may not be able to change your monthly rent payment, but you can downsize your cell phone plan, swap your cable for a cheaper streaming service and cut back on how often you go out to dinner.

Next, calculate how much money you want to commit to debt repayment each month. For example, let’s say that you have $3,000 in credit card debt and you’ve transferred the balance to a card with a 0% APR for 15 months. You paid a 3% balance transfer fee so your new balance is $3,090. To pay that off before the promotional APR expires, you’d need to pay $206 per month.

Having a target number in sight can make it easier to carve out money in your budget from your variable spending. If you already have $100 a month to commit to debt, for instance, finding the rest may be as simple making the switch from buying your lunch every day to bringing it from home.

4. GO THE AUTOMATIC PAYMENT ROUTE

Once you know what you need to pay, you can step up your plan by scheduling automatic payments from your checking account to your credit card. Having an automatic payment system does two things: It keeps you from paying late, which could hurt your credit score, and it takes the stress out of dealing with holiday debt. Putting payments on autopilot ensures that you’re making progress and reducing your balance from month to month.

5. MAKE SAVING FOR NEXT YEAR PART OF THE PLAN

As you’re working out your budget and how much you can pay towards holiday debt, remember to leave room in the plan for saving. Set up an online savings account just for holiday purchases, commit to adding a specific dollar amount to it each month and look for money-saving ideas throughout the year. That way, when the holiday shopping season begins again, you’ll have money on hand. If you’ve worked out a budget in advance, you’re less likely to wind up with another holiday debt hangover.

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