It’s the most wonderful time of the year…until the holidays are over and reality of your holiday debt sets in. It’s easy to overspend during the holiday season. In fact, if you find yourself overspending on gifts and other holiday cheer, you’re not alone.
The average Aussie spends over $460 on gifts each year, and that doesn’t take into account decorations, travel expenses, and other events that all add up. It’s a wonderful thing to give and receive, but what happens when you’ve given a bit too much and you’re left trying to make ends meet? This is called a holiday debt hangover, and it causes long-term strain on your wallet if you’re not careful.
Luckily, this doesn’t have to spell disaster for your finances. It’s officially the New Year. There’s never been a better time to turn your habits around and recover from overspending. There is a cure for your holiday debt hangover. It will take time and hard work, but it’s possible to recover from your seasonal overspending. Here’s a step-by-step guide for dealing with your holiday debt starting January.
1. Take Time to Reflect
First, you should take some time to think about what got you here in the first place. According to Finder, Australians each face up to $1,727 in debt from the holidays. Finder also reported that 19% of those Aussies will take longer than 3 months to completely pay their debt, some expecting to need as much as 12 months or more.
It’s okay to make a mistake and accidentally overspend. It happens, but realize that it’s a sign you need to make a change in your financial habits. Start by asking yourself what led you to this debt in the first place. Did you use a budget for the season’s spending? Did you make a list for specific things you wanted to buy? If not, this might mean you need to properly plan in the future.
Taking the time to reflect on what caused your debt hangover in the first place will help you from running into the same problem again. Now, the next time a birthday, special event, or next Christmas comes around, you’ll know what to do differently. Maybe you’ll make a list, shop earlier, or be more mindful with spending. Either way, you’ll be better off for it.
2. Reevaluate Your Budget
Now that the holidays are over, it’s time to take another look at your budget. We all have to spend a bit more money during the holiday season with so many events, parties, and dinners to plan, but now is the time to get back into your normal spending routine.
The best way to trim down your spending is to write everything out. Make a list of all of your payments and bills. Include everything, from rent payments to your credit card bills. Now that all your bills are written down, label your fixed expenses and your variable expenses. A fixed expense is one you can’t change, like your rent and your insurance. Your variable expenses are those you can change, such as your utilities or entertainment.
You can see from your list of variable expenses that there’s room to cut costs. Whether you have a big phone bill or you’re eating out excessively, cutting back on these things, even if only for a few months, will make a big difference.
3. Break Up with Holiday Debt
When you’ve been working your credit cards really hard this holiday season, it’s not easy to notice your spending adding up when you’re swiping your card for all of your purchases. While credit cards certainly make spending easier, it’s a slippery slope.
Instead of relying on credit for purchases, put your cards away. Challenge yourself to only use cash or debit for a while. This forces you to really think about each purchase before you swipe that card or hand over your hard earned cash.
If you choose to use debit instead of cash, set up alerts to your phone for every time you make a purchase. This will ensure you’re reminded of all your purchases, no matter how small, so you won’t lose track of spending. It’s true that cash and debit feel like going back to basics, but it’s all about being more mindful every time you spend money.
4. Create a Payoff Plan
Now, it’s time to make a plan to pay off your debt. Calculate your total credit card debt and decide when you’d like to pay it off by. Perhaps you’d like to have the total paid off in 6 months. If you have a total of $2000 in credit card debt, you’ll need to pay around $335 a month to pay it off by your goal date.
This is reasonable if you’re able to find that extra cash in your budget. That’s where your budget from before comes in. If you’re able to cut back on spending to find that extra cash, you’ll have a plan that works for you in no time flat.
It’s much easier to carve out money from your budget when you have a target in mind. Even small things like bringing lunch to work instead of buying lunch can save you as much as $10 a day. That adds up to $50 a week in savings!
5. Make Automatic Payments
When you have to think about saving, it’s much more challenging. Nobody wants to say goodbye to their hard earned money. Making manual payments isn’t always a good idea if you know you struggle to remember important deadlines or if you have a hard time keeping track of your money.
Instead, automate your debt payoff. You already know how much you need to pay each month to reach your goal. From there, set up automatic payments with your bank to transfer money immediately when you get paid. It’s best to transfer funds as soon as your paycheck hits so you don’t feel tempted by those funds.
In addition, you won’t have to worry about accidentally missing a payment which will hurt your credit score. Seeing that balance reduce automatically each month will motivate you to keep going and to keep saving.
6. Consider Your Debt Payoff Options
While we already outlined a potential payoff plan, you might need an extra boost to supercharge your efforts. In reality, you have some flexibility when it comes to how you’ll pay off your debt. With credit card debt, most people are worried about rising interest rates and high fees. Luckily, there are options.
If your credit is in good standing, it’s worth calling your bank. Many credit card companies will negotiate lower interest rates or payment options. This might sound crazy, but these credit card companies just want to get paid. They have repayment options available for those who are actively seeking help to payments on time.
Another option that might be a good fit for you is debt consolidation. If you have existing debt spread out between credit cards, consolidating that debt onto a single card with a balance transfer has its benefits. First, there are a number of cards known as “balance transfer cards” that are designed to have low introductory interest rates for a few months. This might even mean you have to pay 0% interest for the first year. Debt consolidation is an effective way to get ahead of your payments without worrying about interest piling up.
Both balance transfers and negotiating with your bank are good options if you’re worried about not being able to keep up with the interest rates while curing your holiday debt hangover. However, speak with one of our debt professionals before deciding which option is best for you.
7. Amp Up Your Earnings
For many people, a single income alone isn’t enough to cut down on debt. We’ve already talked about the importance of cutting costs within your budget, but how can you earn extra money on the side to put towards your debt?
Think it can’t be done? Think again. Every day there’s a story in the media about another successful person who used their side hustle to pay off massive amounts of debt and loans. The Simple Dollar highlighted a story recently from David, a recent college grad who had over $30,000 in debt.
Though he didn’t have a high-earning full-time job, he made ends meet with a variety of side hustles like driving for Uber, delivering pizza, and even using Airbnb to rent out a room in his home. This all paid off when he was free from his debt in just 3 years using income from side hustles alone.
You can choose any type of side hustle that suits your interests. From selling crafts to joining the gig economy with services like Uber, there are more options than ever. As long as you’re able to handle a little extra work, you can make side income to put towards your holiday debt payoff.
8. Change Your Habits
Finally, make a commitment to change your habits this year. What better time to turn your finances around than the New Year? This time of year is full of fresh starts, so make sure one of those starts is your push towards smart financial choices.
Do you have an emergency fund? Are you able to pay your bills on time? These are things to work on in the new year. Remember that budget we created earlier? Now’s the time to hit the ground running by putting that budget into action. Track your income and spending so you don’t fall into the debt trap again.
The cure for your holiday debt hangover is to make positive changes in your own money habits. Start today with these steps above. Before you know it, that holiday debt will be behind you, and you’ll be ready to achieve all of your financial goals with confidence.
Talk to a Debt Busters money specialist today on 1300 368 322 to talk about your debt consolidation and budget options. No matter your situation, there’s a path to financial freedom that’s closer than you think.