Holiday debt can linger well into your new year plans and it might not be the best way to start your year. It could put you at a disadvantage especially if you already have your finances and even household budget set for the year. Having to take on debt from last year can throw you off-guard and make it hard for you to budget.
Check your credit card statement
One of the very first items you need to look at when you are still dealing with holiday debt at the start of the year is your credit card debt. There is a big chance that a lot of your leftover debt from the holidays are in your credit cards. You could have received the statement at the end of December and carried those payments over to this year.
One good thing you have going for you is that you can easily cross-check all the charges you made on the card with the statement you get. All your purchases are listed down and you need to go through them one by one. For one, it helps you understand where your debt obligation is coming from. You understand how much you need to pay back from all your holiday expenses.
As you go through your credit card statement, you can also start looking for discrepancies. Compare what you bought against what is listed down on your statement. If there is a purchase or amount you do not recognize, call the attention of your lender immediately. There are times when these types of mistakes point to an even bigger problem. Biometric Update shares how identity theft now involves deep fakes taking it to a whole different level.
Audit your finances particularly your income
In order to address holiday debt at the start of the year, you need to make sure where you stand financially especially when it comes to your income. After you have identified and verified the exact amount you need to pay back, the next step is understanding how much you can put towards that debt payment.
Remember that this is a spillover of what you spent last holidays which could be on top of your regular household budget. CNBC shares that about 28% of shoppers came into the season with debt from previous holidays. You might just go ahead and pay everything down in one month but without consulting your budget, you could be putting unnecessary and completely avoidable stress on your finances.
Having a clear understanding of your budget especially your income gives you a clear picture of your ability to pay. You need this to know how you can move forward with your payments. Putting together a repayment plan is a lot easier when you have an idea of how much you need to pay back and how much you can pay.
Pay down holiday debt
Now that you have an idea of how much you need to pay and how much you can afford, putting a plan together will be of no use if you do not follow through. This is similar to having a household budget but choosing to just leave it at home and not use it. The effort you have put into creating that plan will be put to waste.
You have to commit to making the payments until you pay the debt obligations you incurred over the holidays. The longer it stays with you, the more expensive it will become for you. You could be paying fees, penalties, and other charges on your card when you choose to pay just the minimum. More so when you start missing payments.
The minimum payment on your card keeps you current but allows your lender to charge you more in succeeding months. As you pay down debt, find a way to put more than just the minimum on your card. Not only will you be able to save money this way, but it also gives you the chance to pay down the debt much faster.
Avoid adding unnecessary debt
As you go through your holiday debt payments, it will be a tremendous help if you stay away from incurring additional debt or at least, unplanned ones. The more you pay down your credit card debt, the stronger the temptation might be to use your card again. This is because you can see your balance going down and feel the urge to spend again.
Apart from purchases you have planned for the year, it will help if you keep your financial obligations to a minimum. If there is a need to buy an item you did not plan for, check if your rainy-day fund can cover it. A much better option is if you have time before the purchase, you save up for it so you can buy it in cash and not add to your card purchases.
The challenge when you add a lot more debt items in your payments especially when you choose to charge the items on your card is that you add more payment stress. You might have already figured out a way to pay back debt from the holidays but if you add more, it could tip your finances over and you find yourself in deep debt.
Start saving for the holidays
If holiday debt has been a constant problem for you for years now, it might be time to be proactive with the problem. This can help you manage the situation even before they start. One idea is to start saving so you have the money the next time the holidays come around. It might seem to be too far out but the sooner you start, the stronger your holiday budget can be.
A good place to start is to identify how much it is you spent for the holidays. Once you have that amount, increase it by about ten percent and start saving for it. The good thing with starting early is that you can spread it across 11 months. What you need at the end might be a little big but if you break them down into smaller targets, they become a lot more doable.
Increase your emergency fund
As you deal with debt payments from your holiday spending, make it a point to still save for your emergency fund. You might not be able to connect one with the other but your emergency fund helps you keep your finances intact at times when you go through unexpected situations. A broken appliance at home or a medical emergency can quickly put your finances at risk.
Your emergency fund can help you go through these situations without compromising your savings or even your credit card. Once an unexpected emergency happens, you lower the risk of adding to your debt situation because you have the resources to cover your needs financially. You do not have to use your card to pay for that broken appliance at home or for the emergency medical need you have.
There are several schools of thought on how you should save up for your emergency fund. Some experts are saying that you need about $1000, others suggest saving enough for 3-month’s worth of expenses, and others tell you to save for 6 months. Choosings has a lot to do with your ability to save and your current needs and lifestyle. Whatever you choose, the important thing is that you get started with the goal to help you save up faster.
Having to pay down holiday debt at the start of a new year can take its toll on your finances but you need to address it as soon as possible. The longer it takes you to pay it down, the costlier it can be for you for the year. It is challenging but not impossible as long as you commit to a repayment schedule and continue on with it.