It’s an easy thing to do: blow your entire month’s budget on holiday shopping, festive outfits, and dining out. Trust me: I’ve been there, too.
It wasn’t until I graduated from college and landed my dream job at CNN that I got my first credit card. I was raised in an immigrant family, where cash was queen and debt was just not okay. The trouble was, I hadn’t experienced the perils of interest before, and by that first holiday season in Atlanta, not only was I broke—I owed $5,000 on my credit card. Ouch. Those random purchases made here and there had snowballed with interest faster than I ever would have imagined possible. Finding myself in debt for the first time in my life kept me up at night, and I resolved to start the new year fresh and debt-free (or at least, on my way to becoming debt-free).
So how’d I do it? I’m not going to sugarcoat it: it’s not easy, and certainly not fun. But it can be done. Try this:
- Face the music. The worst thing you can do right now is to hide from those unopened bills on your kitchen counter. Take a deep breath, open them, and assess where the most damage occurred. Was it on dining out? Travel? Gifts? Most banks and credit card companies will automatically organize your expenses into categories online, and knowing where your budget went off the rails will help you to identify how to adjust your spending moving forward. Make sure your partner (if you have one) does the same with his or her expenses. If you were spending as a couple throughout the holidays, then looking at only one bank statement will give you only half of the picture. Add up all of your holiday-related spending — don’t forget ATM withdrawals! — and that final number is your target to pay down.
- Take a budget trim. To free up more cash to recover from overspending and start getting your finances back on track, pick out two or three monthly expenses that you can do without for now. Maybe it’s your Netflix account, your monthly facial, or those fancy boutique fitness classes. It’s not “goodbye forever,” but eliminating some of these monthly payments that you probably don’t even think about anymore for now will put a little “bonus” cash back into your pocket to put toward your debt.
- Do double-time on your credit-card payments. Those credit card charges add up faster than you might think, and you may end up paying $50 for a pair of socks before you’re through paying off your cards. Of course, the best solution is to pay off the balance of your cards right when the statement arrives, but that isn’t always a viable option. Instead, try to curb enough of your other expenses (take from your “fun money” category first) to double-down on your payments each month until your holiday expenses are covered. You might be tempted to cut up some of your cards, but DON’T. This could hurt your credit score, because your score is based, in part, on the percentage of your available credit that you’ve used. If you close accounts, you lower the total amount of available credit you have. Assuming you are still carrying a balance on other cards, this will look bad to the credit agencies — because it will look like you’ve used more of your available credit because there is less of it to go around.
- Say goodbye to self gifts. According to the National Retail Federation, nearly 60% of shoppers planned to buy something for themselves during the holidays this year. Guilty of making a pricey impulse buy for yours truly? Return it, and the sooner the better. Not only will you grow more attached the longer you hang onto that item, but some retailers have strict 30-day windows for a full refund. Even if you don’t have a receipt, some stores can track down purchases made by debit or credit card, or at the very least offer store credit which you can put toward something less frivolous and more useful. You can also cash out of any unwanted gift cards by selling them on sites like Cardpool.com and recover most of the card’s full value in cash.
- Rebuild your rainy day fund. Around 14% of shoppers have used emergency funds to cover holiday spending. Eek! Remember that the whole point of an emergency fund is to have cash on hand to cover unexpected expenses — and the holidays are far from unexpected. If you tapped into your fund for the festivities, now’s the time to rebuild it — and quickly — so you don’t have to rely on credit if a real emergency occurs. Set up automatic transfers from your checking account so that 10-15% of your paycheck is moved into savings. You won’t miss that money as much if you never see it in the first place!
- Set realistic resolutions. In the same way that you vow to drink eight glasses of water per day, go to the gym three times per week, or volunteer once per month, set measurable goals for paying down your debt in the new year. Don’t just say “I will get rid of my holiday debt.” Instead, try something like this: “I will put $250 toward my credit card bill per month in order to pay off my debt by April.” Give yourself a reward to work toward, like a dinner out or a manicure. And then treat yourself to that reward as soon as you’re debt-free. In cash.
- Start saving for next year. It might sound counterintuitive to go shopping after the holidays, but the only discounts deeper than those before the holidays are those directly after. Score some gifts for next year—plus wrapping paper, holiday cards, and ornaments—at 60-75% off. This time next year you’ll be glad you did! Then set a maximum dollar amount for gifts for each member of your family, and start saving a little bit each month toward that amount. You’ll have enough cash by the time the holidays roll around that you won’t have to rack up debt again to cover your expenses.