Another holiday season has come and gone. The gifts have been unwrapped, the decorations are packed away, and life is slowly returning to its normal rhythm. But as you settle into the new year, eager to tackle your resolutions – especially those financial goals – you’re suddenly confronted by an unwelcome reminder of holiday cheer: your credit card bill.
Maybe you’ve been avoiding logging into your account to face the damage. Perhaps your statement is still sitting unopened on the countertop. Or maybe you’ve already looked and are staring at it in disbelief.
Before panic sets in, take a deep breath. You don’t need a financial miracle to recover. What you need is a debt detox. With the right approach, you can regain control, reset your finances, and start the year off strong.
Before You Begin…
Facing the reality of overspending during the holidays can be stressful. The first step is to give your credit cards a break. While you might need them for recurring monthly expenses, limit any new and unnecessary costs. All those after-the-holidays sales – tune them out and walk away!
Most of your friends and family will likely be in a similar boat. Find ways to enjoy one another’s company without costly outings. If your friends invite you out, mention that you’re on a strict budget after the holidays – most will understand and offer more affordable alternatives.
How to Perform a Debt Detox:
A “detox” is a process of removing toxins from your body that make you feel unwell. This is a natural process but can be aided by supplements. Our debt detox will provide a framework and tips to help put you back in a strong and healthy financial position.
When it comes to holiday debt, it’s best to face it head-on. Don’t hide from it or procrastinate. The sooner you start, the more time you will have to develop solutions.
Look over your credit card account balances, transactions, and due dates. Get a complete picture of where you stand debt-wise. Once you accept it and define your starting point, you can get to work on creating an action plan.
- Step #2: Analyze Your Situation
Take time to review your account statements for the last few months. Break your expenses into holiday-related and everyday living expenses. You need to identify recurring costs that will hit your card each month in the new year - then isolate the holiday debt.
It’s easier to look at these figures as two separate monthly credit card payments:
If you use your credit card to help with cash flow for everyday expenses throughout the month, you will ideally pay this entire balance off at the end of the month.
Take your total holiday-related expenses and break them up over a set timeframe. For example, if you have $1,200 in holiday credit card expenses and want to pay off the balance in 6 months, you must make roughly $200 payments each month (not including interest charges).
- Step #3: Revamp Your Budget
Look over your budget from the past year. Was it realistic with your spending habits? Search for opportunities to trim expenses and reallocate funds to your outstanding credit card balances.
Simple cuts in your budget can compound over time and save you substantial money. For example, if you pause some subscriptions and dine out less, you might save $50 - $100 monthly. Over six months, that’s $300 to $600 in savings. Start small and be realistic when crafting your new budget.
- Step #4: Choose a Debt Management System
In addition to your new monthly budget, it also helps to establish a repayment strategy. There are two common approaches to consider that can keep you motivated throughout the process:
Begin by determining your smallest credit card balance. Make the minimum payment on all your cards, but then pay extra toward the smallest balance first. Once you repay the first card, move on to the next lowest balance. Like a snowball starts small and grows bigger and bigger, so will your debt repayments. This strategy helps to build confidence and healthy debt repayment habits.
Begin by determining which credit card has the highest interest rate. Make the minimum payment on all your cards, but then pay extra toward the most expensive debt. Once you pay off the first card, move on to the next highest-rate card. This strategy provides the greatest cost savings overall.
- Step #5: Jumpstart Your Efforts
When repaying credit card debt, it can often feel like you’re not making progress. You’re chipping away at your balances, but the high-interest charges cancel out the progress you’ve made. If this happens to you, consider consolidating your debt.
Debt consolidation is the process of combining multiple high-interest credit cards, personal loans, or payday loans into a single, lower-rate loan. The process might sound complex, but it’s straightforward, and the savings can be substantial and immediate.
The most common debt consolidation tools are:
- Personal Loans
- Credit Card Balance Transfers
- Home Equity Lines of Credit
Instead of juggling multiple credit cards or loan due dates, you’ll have a single payment. Plus, with lower interest rates, you’ll instantly save money that can be put toward your outstanding balance – helping you eliminate debt even faster!
- Step #6: Seek Outside Help
If your credit card debt is more than you can handle, it often helps to have a separate set of eyes glance over your situation. For example, your financial advisor might suggest you use non-tax-advantaged investments to pay off the debt. If you’re earning 7% APY on an investment but paying 24% APR in credit card interest, you’ll “make more money” by eliminating the debt.
You can also reach out to credit counseling services or the credit union to help you build a realistic budget and find solutions to help get you back on financial track.
We’re Here to Help!
Recovering from the holidays can take dedicated effort – both financially and mentally. As you start your new year debt detox, remember that taking small steps now can quickly compound and lead to substantial progress over the coming months.
If you’re ready to eliminate high-interest debt and simplify your financial life, we’re prepared to help. To learn more about our VISA® Balance Transfer or Personal Loan options, please contact us today.