Holiday Debt And How To Tackle Them Early On

holiday debtAt the start of the year, there is a big chance that you are thinking about holiday debt you incurred during that frantic celebration week. From gift giving to parties and even last minute travels, the holidays could have set you back in your budget. As a result, your first financial challenge for the year is overcoming that debt.

It might be a little disappointing because you are trying to get ahead at the start of the year. However, the debt you incurred is pulling you down and bringing you in a different direction. Rather than think of strengthening your finances, you are too preoccupied with thinking of ways to pay down your huge debt amount.

Americans added over $1,000 in credit card debt over the holidays according to CNBC. That is a big amount to overcome especially if it is not included in the budget. There are people who might be able to pay that holiday debt in a month or two. However, the reality is that a lot more consumers would have to pay for it for for a longer time.

This is one of the downsides of holiday expenses that went unguarded. As you enjoy the time with family and friends, you might have lost track of your budget. It is possible that you had one to start with but along the way, you just got into the moment and started buying gifts for everyone you know. You could have booked a last minute travel just to be with family and other people close to you.

These and a lot more could have resulted in accruing a lot of debt over the holidays. That being said, here are a few things you can do to get over that financial hump.

Review your holiday debt

Calculating The Household BudgetNow that you are looking at that mountain of debt you got over the holidays, the first thing you need is to review your expenses over the holidays. If the debt you accrued is all on your credit card, you can check your statements as well as the receipts you have for all your purchase. It would be better if you can list them all down so you have a working list.

Next thing you need to do is totally all of them and check if you come to that same total as your debt amount. At this point, it is a smart move to check each and every expense item. What you are looking for are anomalous transactions if any. Also, try to identify impulsive purchases that you made over the course of the holidays. It can help you identify your triggers such as sale promos or even seeing the same item from friends and family. This will help you avoid the same things the next time the holidays come around.

Have a concrete household budget

Once you verify the purchases that led to your holiday debt, the next thing you need to focus on would be your household budget. You need to have an idea what your financial capability is when it comes to paying off debt from the holidays. It is important that you know where you stand financially so you can pay off your debt.

Analyzing your household budget is a pretty straightforward process. You just have to factor in all your sources of income. Next is making a list of all your expenses that you have to attend to month on month. Much like your income, this needs to include all your expenses. From basic needs big-ticket debt payments, you have to include everything.

Start looking for a debt payment strategy

As soon as you have a clear picture of both the debt amount you owe and what you have in your budget, it is time to start thinking about a repayment plan. There are a number of payment strategies you can use to directly address holiday debt. Each of them has their own financial advantages and disadvantages.

One of the payment strategies is the so-called avalanche method where you set your sights on the accounts with the highest interest rate. This is meant to help you save interest payment in the long run. Another strategy is the snowball method where you set your sights on the accounts with the lowest payment amount. This strategy gives you mental wins that encourages you to pay off more debt items in your budget.

One other payment strategy you can look into is debt consolidation. From the name itself, the strategy involves combining your debt payments under one account. For one, it helps you manage your debt payments better. Once you combine your payments, you get to focus on much fewer details and lower the chances of overlooking payment due dates. You can also enjoy the benefit of lowering your monthly payments due to a higher credit score or longer payment period.

Widen the gap between income and expenses

When you start talking about debt payment, your budget plays a big role in determining how you pay it off. One thing you need to remember is that the wider the gap between your income and expense with your income on top, the better off you would be. This would give you more room in your finances and allow you to make extra payments towards your holiday debt.

The most common thing people do is to lower down their expenses. After you have put together your budget, you still need to conduct a thorough review, especially on your expense side. What you need to look for are areas to cut down further. The more expenses you free up, the more you have to double down on debt payments.

Another strategy that a lot of people prefer is looking for ways to increase their income. Traditionally, this used to involve taking on a second job. Something they can do after their day job such as bartending, waiting tables or even pulling double shifts at work. There are those that choose to take on online jobs to earn more money. Others prefer to earn from their hobbies which allows them to earn good money doing something they are passionate about.

Plan for the holidays early on

One of the most effective strategies to address holiday debt is to prepare for it early on. Now that you have an idea how much debt can set you back at the start of the year, you can choose to be proactive for this year. One of the best ways to do that is to make preparations so you do not go through the same mistakes once the holidays come around.

For one, you need to list down all the people that you gave gifts to during the last holiday. This will allow you to assess the overall picture. Next is planning early on what to give them and saving up for that expense. Putting aside a small portion every month is better than stressing out where to get a large amount come the holidays.

Holiday debt carryovers to the new year mostly because you were not able to plan for your expenses early on. It is still at the end of the year but if you plan on it early enough, you can enjoy the holidays without having to lose sleep over your debt payments.