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As the holiday decorations come down and the new year begins, many of us are left with the financial aftermath of festive spending. If you find yourself starting the year with holiday debt, don’t panic. The first few weeks of the new year are an ideal time to reflect on your holiday spending and take proactive steps to regain control of your finances. The key to financial success and debt repayment is creating an achievable budget — one you can stick to and follow through on.
Either way, it will take time, but the important thing to remember is to commit to your goal and stay with it. By staying focused on your end goal, and keeping control over not adding unnecessary new debts, your existing debts can start to slowly melt away.
Here are six effective strategies to help you regain financial control and tackle your holiday debt head-on.
1. Do the Math
Begin by calculating how much you owe. Gather all your credit card statements and any other debts you picked up during the holiday shopping season. Understanding the total cost of borrowing and how much total debt you owe can give you a clear picture of your financial obligations. This can help you come up with a plan to tackle your debt.
Do your best to not get overwhelmed when you’re finally looking at the total amount you owe. It can be a little scary, but coming up with a plan can help you deal with the feelings of stress and anxiety that come with having outstanding debts. The first step is knowing what you owe and when payments are due.
2. Reflect on Your Holiday Spending
Holiday spending is an easy way to get into debt. A few gifts and events here and there and before you know it, you’ve blown past your holiday budget. Paying off holiday debt can seem daunting, but the first step is to understand what you spent your money on. Start by reviewing your holiday spending. Were there areas where you overspent that could have been avoided? Was it a bunch of small gifts and last-minute purchases that drove you over budget? Or was it paying top dollar for a big gift?
If you need a little extra help with the process of tracking your expenses, you can look into budgeting apps like PocketGuard and Goodbudget, which are great tools for over-spenders and beginners alike.
Understanding your holiday spending habits can help you identify patterns to avoid in the future and motivate you to tackle your debt now.
3. Set Immediate Financial Goals
Setting clear financial goals for the New Year always helps to keep you on track. Beyond repaying debt, it’s important to have a financial blueprint to guide you through the year and keep your expenses and savings in line with your income and financial goals. Your financial goals will help you focus your efforts in the short and medium term whether that be increasing your savings, reducing your debt or even impacting your credit history. Set clear, actionable goals for paying off your holiday debt.
For instance, if you owe $1,200, aim to pay it off within three months by setting aside $400 each month. Having a timeline creates urgency and keeps you focused.
4. Create a Repayment Plan
Understanding what you owe and when payments are due can help you manage your debt. Once you know your total debt, set up a repayment plan. There are two basic strategies that can help you reduce debt: Debt avalanche and debt snowball are both types of accelerated debt repayment plans.
Prioritize your debts using one of these methods:
- Avalanche Method: The debt avalanche method is a debt repayment strategy that involves paying off debt with the highest interest rate first, then working your way down to debts with lower interest rates. This method can save you money and time by reducing the amount of interest you pay in the long run.1
- Snowball Method: The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest balance to the largest debt, starting with the smallest debt to gain quick wins and build momentum and working progressively to pay off the largest amount. After you pay down your smallest balance, you pay off the next smallest debt and repeat until all your debt is paid.2
There is no right or wrong answer when it comes to which method is best because every person’s debt situation differs. Sometimes it might even be a combination of both methods. It’s up to you to figure out what motivates you and which process may be the best fit for your situation. Choose the method that best fits your personality and goals and start repaying that holiday debt.
5. Track Your Spending
Be careful not to stack up more debt while you’re working to repay your debt. Track your spending to make sure you stick to your budget. Take note of how your credit score changes. Paying down your debts may help impact your credit history over time.
Adjust your budget to free up funds for debt repayment. Identify areas where you can temporarily reduce spending, like dining out, subscriptions, or non-essential purchases. Redirect these savings to pay off your holiday debt faster.
6. Track Your Progress
Stay motivated by tracking your debt repayment progress. Use a budgeting app, spreadsheet, or notebook to record payments and watch your balances decrease. Regularly reviewing your progress can keep you focused and on track.
Plan Ahead
Avoid repeating the cycle of holiday debt by planning ahead for the next season. Start a holiday savings fund and contribute a small amount each month. This proactive approach can help you enjoy the holidays without financial stress.
Holiday debt can feel daunting, but by following these steps you can pay it off efficiently and set the stage for a more secure financial future. The new year is a time for fresh starts—take control of your finances and make it a great financial year. Repaying your debt is not as easy as racking up debt, it’s going to take hard work, sacrifice, budgeting—and constantly reminding yourself of your future goals. A little dedication now can set you up for a debt-free future.
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