Credit card debt any time of year can add to stress levels. Holiday debt can be particularly frustrating because it often comes with spending obligations you may feel you have little control over. There are obligatory gift exchanges and children you do not want to disappoint. No one wants to spend the Holidays with an “I can’t afford it” mantra.
The use of credit cards has become the preferred way to pay for items, and yet when you use multiple cards, it can be more difficult to keep up with spending. Add this to intense holiday advertising, “Black Friday” deals marketed each week, and it is a recipe for disaster on the most well intended budget.
Unfortunately, these factors often result in excess spending that must be addressed as the January bills come pouring in. Now, you must figure out how you will pay the arriving bills and commit to planning better so next year is not a repeat.
5 Surefire Ways to Reduce Holiday Debt Fast and Prevent a Reoccurrence Next Year
- Assess the Damage: As January bills arrive, check each one for accuracy, and record the current balance, interest rate charged, and minimum due. Depending on your goals you can evaluate spending for only November and December or your total credit card balances. If the debt balances are overwhelming, it may be easier to address the holiday debt independently. This is easier done if you had one credit card dedicated for holiday spending. If multiple cards were used, it may be time to put together an overall debt elimination strategy for greater long term success.
Either way, having a clear picture of where you are currently, will help you get started. Resorting to only making minimum payments, will extend the debt for decades, eliminating any hope of becoming debt free. No one wants to be paying for this year’s purchases 10, 12, or even 15 years down the road. Without a deliberate strategy, that could become your reality.
Debt reduction begins with knowing how much you have spent and what your current balances are. Focus on where you are and where you want to be, rather than directing energy wondering what could have been, had you done things differently.
- Start Somewhere: Once you have the raw data in front you, choose a starting point. How do you want to prioritize your debt reduction plan? Place all your credit cards in a drawer or your safe deposit box and make them off limits until your debt is under control. Closing the accounts could impact your credit negatively, so stopping usage is the best strategy.
An overall debt reduction plan can be equated to the “how do you eat an elephant,” analogy, one bite at a time. Break things down into bite size pieces and work one strategy until you have achieved success. Are there charges made on a promotional 0%, put this at the back of the list. Are some cards charging over 20%, put those at the front?
For high interest rate cards make a phone call to the credit card company requesting a reduction in the rate. If you have not had any late payments over the past 12 months a simple phone call will often result in a lower rate. Even a few point reduction will result in more going towards the balance, rather than the interest.
- Start today with what works for YOU: The internet is filled with debt elimination strategies, each claiming to be the best. The truth is you don’t need to pick the best strategy; you just need to select one you can live with, and do it. Any plan that pays more than the minimum and eliminates overspending, will result in debt reduction. It’s the starting and stopping, the moving from one idea to the next, that results in failure. When you don’t stick with your chosen strategy, results become elusive and you become frustrated. You didn’t get into debt overnight and there is no magic pill that will make it go away overnight either.
Think about what motivates you. Do you need fast results…if so, start with the smallest balance? Do you thrive on paying the least…choose the highest rate of interest first? For an automated plan…pay the three year pay off amounts and set up auto drafts to pay the bills. Choose whichever strategy works with your strengths. Which plan will keep you motivated for the long term? Where you start is not what’s important, it’s starting and sticking with it that will lead to success.
- Check Your Credit: Debt elimination may be most effective through a loan consolidation if you’re your credit is still strong. Debt consolidation can come in many forms from transferring balances on credit cards, getting a consolidation loan, to refinancing your mortgage. It does require no recent late payments and an acceptable level of current debt to income, in order to qualify. If you are struggling to make the minimum payments on your credit card accounts, this may not be an options for you.
- Make Extra Payments: Reduction in spending is the key to a successful debt reduction plan. Eliminating unnecessary spending will start you in the right direction. A second job or ear marking extra money, like tax refunds, towards debt reduction, will bring about faster results. Any plan must have measurable results and a timeframe that is realistic. Finding leaks in current spending is a way to “find” hidden money that won’t require drastic lifestyle changes.
Avoiding a Repeat Next Year
Know how you spend: Once you have a plan in place for eliminating this year’s holiday debt, evaluate successes and failures over the past holiday season. Without recognizing your spending patterns, you will be destined to repeat your mistakes in the future.
One simple solution is to establish a budget in January, for next year’s holiday costs. Time is on your side, and you will be able to set aside a little each pay period into a dedicated account, giving you the money you need for next year.
After evaluating current finances, if you find things are worse than expected, it may be time to call in the pro’s. Companies like Strategic Consulting help consumer’s deal with overwhelming debt situations every day and have solutions that can right your financial hardship. The sooner you call and face the situation, the more options you will have. Once late payments are made, or debt collectors have you on speed dial, late charges and penalty interest can exasperate the problem. While your debt load may feel hopeless, they understand and have the resources and solutions work with your personal circumstances. These strategies often result in faster debt reduction, and you paying thousands less than creditors are demanding.