Some people plan well in advance for the holiday shopping season. They come up with a savings plan early in the year, and when the time comes to shop or plan a trip, they pay for everything outright. Others aren’t as fortunate.
A credit card can become your best friend if you don’t have cash for holiday-related expenses. And like some people you might get so caught up in the holiday shopping frenzy that you forget one important thing: you have to pay back your creditors.
Post-holiday debt woes often surface when the first credit card statement arrives in January. You can’t change the past if you got in over your head buying gifts and spending money you didn’t have, but there are ways to avoid carrying this debt into the new year.
1. Give the card a break
To tackle debt in the new year, the first thing you have to do is stop charging. But don’t just stop using the card, remove it from your sight. A month of swiping your credit card can be the beginning of a costly bad habit. And if you don’t have self-control, keeping the card in your wallet is a recipe for disaster. Remove cards from your wallet and put them in a safe place. The more charges added to your account, the harder it’ll be to dig yourself out of a hole.
2. Decide which debt to tackle first
If your holiday purchases were spread over several cards, decide which card to pay off first. You can pay off both cards simultaneously, but another approach is focusing on the credit card with the highest interest rate regardless of the balance (avalanche method), since this debt costs more in the long run. You’ll pay more than the minimum on this credit card while making minimum payments on your other cards. Once you’ve paid off the card with the highest interest, redirect these payments to the credit card with the next highest interest rate.
However, if you need a little momentum or a psychological push, focus on the debt with the lowest balance first (snowball method) regardless of the interest rate. Since you can usually clear this debt easier and faster, there’s a sense of accomplishment which can motivate you to tackle other balances.
3. Trim the financial fat
Some people rely on credit during the holiday season because they don’t have extra cash lying around. If you didn’t have cash then, you probably don’t have cash now. However, you don’t have to watch helplessly as the interest adds up. Get creative and find extra cash in your budget by looking for money leaks. These are recurring unnecessary expenses that you probably don’t think about, yet they can add up to hundreds of dollars.
A money leak could be the premium cable package you’re paying for, despite the fact that you don’t watch half the channels in the package. Or maybe it’s the high utility bill you’ve become accustomed to, yet you can easily lower this expense by making a few energy-efficient adjustments, such as weatherstripping doors and windows and caulking cracks. Money leaks can also include avoidable ATM fees.
Go through your bank statements or use Personal Capital (free budgeting tool) to get a better idea of where every dollar goes and then look for ways to cut back. You have to know where your money goes before you can come up with a plan to eliminate post-holiday debt.
4. Use reward points to pay for charges
Check to see if your credit card has an option that lets you pay off charges by redeeming reward points for statement credit. Even if you don’t have enough points to pay off holiday charges in full, maybe you can knock down the balance and jump start the process
5. Transfer your balance
Applying for a new credit card might be the last thing on your mind. But depending on the interest rates you’re currently paying, you might get rid of post-holiday debt quicker by applying for a 0% interest balance transfer credit card and transferring your balances to the new card. Some credit cards offer this introductory rate for the first six to 12 months or longer. Zero percent interest is a godsend because the credit card company applies every cent of your monthly payments to the principal.
Credit card debt is a unfortunate reality for most people after the holiday season, but don’t let it get you down. Getting ahead of your debt requires a game plan, a commitment, and sacrifices. After you’ve eliminated debt, the next step is coming up with a strategy to avoid credit card debt next year. Determine how much you typically spend during the holiday season. Divide the amount by the number of months left until next December, and then set this amount aside every month. Since you’ve already taken steps to reduce expenses, stick with these savings habits after you’ve erased the debt, and use this money to save for next year.