At the end of 2016, a quarter of consumers said they expected to rack up holiday debt. Of those shoppers, 66 percent said it would probably take them three months or more to pay it all off. That’s a lot of shopping.
“Most, if not all, of us have been there,” says Ryan Frailich, a Financial Planner in New Orleans. “We forgot about four people we needed gifts for and underestimated how expensive traveling would be. Before you know it, our December credit card bill is double what we expected. The good news is, for many, this is manageable.”
If you’re in a post-holiday spending haze, your first order of business is to come up with a solid debt payoff plan. Beyond that, here’s what you can do to fix your finances now, supercharge your debt payoff, and prepare your budget for next year’s spending craze.
1. RETURN STUFF YOU DON’T WANT.
“Return them for cash and use the money you receive to pay down your holiday debt,” Perez says. “If you don't have a gift receipt and receive store credit for your return, you can sell your gift card through sites like GiftCardGranny.com for up to 90 percent of the card's value in cash.”
2. FIND WAYS TO EARN EXTRA CASH.
It’s easier said than done, but a side gig or two could really boost your debt payoff goal. “Love dogs? Dogsit your way to being out of debt," says Frailich. "Got an extra room? Airbnb can bring in great cash flow for a short period of time if you need it. Find a way to boost your earnings so you can rid yourself of the debt ASAP.”
When you're using your extra cash to bail yourself out of debt rather than, say, buy a new pair of sneakers, the money doesn't seem to go as far. “Once people are in debt, an extra $300 doesn't feel as big as when they were debt free,” Frailich says. But this is precisely when every penny matters. As your debt increases, so does the interest you rack up. As you pay down your principal balance, even if it’s by a small amount, your interest payments will also decrease.
3. GO ON A SPENDING FAST.
“Try a ‘no spend’ month, where you stay away from restaurants and movie theaters and stay home for a month,” says Craig Dacy, a Financial Coach.
Most "no spend" months involve cutting non-essential expenses—like entertainment, shopping, and meals out— so you can funnel those funds to your credit card bill instead. Perez adds that some extreme participants also cut their grocery spending for the month and eat what’s already in their refrigerator or pantry. For this stricter approach, Dacy recommends using Supercook, a web app that generates recipes based on what you already have at home. (You can use an app like this to help you shop smarter, even if you're not drastically limiting your grocery budget.)
“Identify what structure works best for you to yield the most savings and apply your ‘extra’ cash toward your holiday credit card bill,” Perez says.
4. TRANSFER YOUR BALANCE (CAREFULLY).
And then there’s the balance transfer hack. You transfer your credit card debt to another card that offers a promotional 0 percent interest balance transfer. With these promos, you have a certain amount of time—usually six months or a year—to pay off your balance before you start accruing interest.
“If you have a high credit score and are eligible for a 0 percent balance transfer, it may be a good strategy to use in this one instance, as long as you are absolutely certain you can pay off the full balance during the 0 percent term," Frailich says. "Be careful, though, because if you don't pay it off in full during that window, you'll pay even more in credit card interest than on your original card.”
Not only that, you also want to watch out for deferred interest credit cards. These cards offer similar terms to 0 percent interest balance transfer cards, but if you don’t pay the full balance by the end of the promotional period, you could end up owing interest retroactively. Be sure to read your credit card’s terms and conditions thoroughly before committing to anything.
5. SAVE NOW FOR NEXT YEAR.
Finally, prevent another hangover by preparing for next year’s spending as soon as possible. The holidays catch people off guard, but they really shouldn't—they’re right there on the calendar. Holiday gifts and travel are predictable expenses you can budget for now.
Frailich describes a client who consistently overspent and racked up debt every January. After paying off the previous year’s debt in April, she started automating a $50 transfer from each paycheck into a savings account dedicated to holiday spending. “When the time for gift-buying and traveling came, she already had $800 set aside, so she was able to handle almost all of her costs with that money. Going forward, she is continuing her automated savings so she'll be ready next year to handle the full holiday expenses with money she saved ahead of time.”
Another suggestion to consider: You don’t have to spend so much on the holidays to begin with. Lay out your spending limits and expectations beforehand so you’re not frantically spending on last-minute gifts. “I know some families who do a drawing and each person only buys and receives one or two gifts per year rather than facing an endlessly growing list of people to shop for,” Frailich says.