After the holidays, it’s common for Americans to experience more debt than usual due to the extra gifting and social obligations. According to a survey conducted by Magnify Money in 2019, Americans took on an average of about $1,325 of holiday debt. Most of these holiday spenders didn’t have a plan in place to pay it off by January.
Since debt can add to your financial stress, it’s essential to tackle it head on. Creating a holiday debt plan can be your saving grace. So, to cure your holiday debt hangover, here are a few solutions to move toward recovery.
HOW TO MANAGE YOUR DEBT AFTER THE HOLIDAYS
It is crucial to have a plan in place to manage your debt after the holidays. This plan might look different for everyone, but the goal is the same: don’t let your holiday purchases haunt you all year.
IDENTIFY THE ROOT OF YOUR OVERSPENDING
The first step to managing your debt is to identify the root cause of your overspending. Do you feel obligated to spend a lot on certain people? Did you forget to set a budget for yourself, so you don’t know how much you have to spend in the first place? There are many causes for overspending, so take time to reflect on why you are going into debt.
START USING CASH
A great way to ensure that you stay on budget is to use cash. For example, if you know that you want to pay off your holiday debt quickly, then take out your monthly budget amount from an ATM and only spend what you have available. This will help you avoid huge interest rates on credit card debt, too.
CREATE A BUDGET TO PAY OFF YOUR DEBT
If you can’t avoid debt or have already taken it on, create a budget around your debt. Make a plan to pay off your debt as fast as possible. This might mean forgoing evenings out in January to save money or decreasing spending in other areas. This might even mean sticking to a budget all year that allows you to save for next year’s holiday season.
AUTOMATE YOUR PAYMENTS
By setting up automatic payments, you can make sure that your debt payments are made in full and on time. Automating your savings will help you maintain or increase your credit score while holding you accountable for making debt payments. It will also help you reduce your balance each month.
HOW TO PREPARE FOR NEXT YEAR’S HOLIDAY SPENDING EXTRAVAGANZA
Once you’ve paid off your holiday debt, you’ll want to do anything you can to avoid going into debt again the following year. Here are a few things you can do to prepare for next year’s holiday spending:
1. Make a holiday budget – To ensure that you don’t overspend, know how much you’ll need to get through the holiday season. If you don’t have the money set aside, you can plan where you’ll cut back in your budget in advance. For example, if you plan to spend $50 per person you buy for but don’t have enough money, you can either plan to decrease the amount you spend on each person or decrease the number of people you’re buying for.
2. Start saving for the holidays now – During the year, you can set aside extra cash to help you get ahead for the holidays. For example, if the average American goes into $1,325 of debt, they could set aside $110 per month to help them save that much throughout the year.
3. Say no to some commitments you didn’t plan for – There’s no shame in saying no. Don’t go to expensive events that you don’t want to attend.
4. Look for ways to save and cut back on holiday spending – Start looking for ways to save early. You can search for coupons online and start planning lower-cost menus ahead of time.
THE BOTTOM LINE
The holidays don’t have to mean taking on debt. If you’ve accrued debt over the holidays, put a plan in place to start paying it off as soon as possible. This might include creating a budget that helps you plan for next year’s holiday season.