“Deck the halls with boughs of …debt?!”
Are you guilty of overindulging this holiday season? If you are feeling a little anxious about the state of your spending as you head into the new year, don’t worry – we’ve got you covered! We’ve outlined 4 helpful tips you can implement to begin feeling more settled today:
Face the Facts
Print off your bank and credit card statements from the previous few months and review your end of the year spending behaviors:
- Where did you do most of your shopping?
- How did your spending impact your budget?
- What were the big ticket items that had the most impact?
- How many small purchases (i.e. less than $15) did you make that somehow found a way to “add up”?
- Were you shopping emotionally?
- Did you over-do it on Black Friday?
- Did a promotional email get the best of you?
Once you have a good idea of how you arrived in this situation, you’ll have a much better idea of how not to repeat these efforts in future years.
Go on a Spending Freeze
Give your wallet a much needed break by designating a few “no spend” days (or weeks!) this month. Resist the temptation to impulsively add things to your online cart and trim some of the little luxuries from you day in order to save on some of the unnecessary expenses. Delete promotional emails that can make it difficult to stick to your goals, and make a plan to address your spending head-on.
Create a Debt-Payoff Plan
Ditch that holiday debt for good by creating a payoff plan and getting organized. It may seem trivial, but you would be surprised at how helpful it is to take a moment to document and track all of your debt obligations in one place. In order for you to ensure you are staying on top of your obligations, you’ll want to make sure you know your balances, your due dates, interest rates, credit limits, and other important information. Then, you’ll want to gather all of your loan documents and keep it in a safe space along with your organization tracker.
The next key to debt management is deciding how you’ll begin paying off the balances. There are two main approaches to paying off your debt. The first popular method is called the snowball method.
The snowball method is based on the idea of building momentum little by little in order to achieve a powerful force that snowballs accordingly. This method involves organizing your debts smallest to largest and prioritizing those with the smallest balances first. This method assumes that if you can tackle and eliminate even one small debt, you will feel more motivated to continue and therefore will be more likely and able to focus on the next hurdle.
The other method is the high-interest approach. This method again requires that you organize all of your debts, but this time doing so with regard to their associated interest rates. Given that interest charges can add up over time (which increases your overall financial liability), this method requires you to prioritize the debt with the highest interest rates first. Once you have been able to eliminate your highest interest debt, you then turn your attention to the debt with the next highest interest rate. Many financial experts advocate for this approach because it will reduce your overall amount owed over time. However, when it comes to tackling your debt, you know your personality best and can determine the method that would work best for you. If you know you’re more likely to stick with something if you feel a sense of satisfaction earlier on, then the snowball method might be for you. However, if you’re more concerned about reducing your liability and overall amount of interest owed, then the high-interest might be best for you and your situation. Again, choose the approach that works best for you and that you’ll actually stick with.
When it comes to consumer debt, or credit card debt, another option is to execute a balance transfer. Essentially, a balance transfer is when you choose to transfer your full credit card balance to a different credit card that charges less (or no) interest in order to reduce or eliminate your interest expense. This can be a great option for those carrying a high balance, but keep in mind, you’ll want to ensure you understand the fine print and do your research before making the switch. Most cards that allow balance transfers do charge a particular percentage of the transfer balance (often times this is 3%), so this is something you’ll want to take note of. If your current interest liability on your current card is higher than this balance transfer fee, then it may make sense to transfer your balance. However, prior to doing so, it is always prudent to meet with or seek the advice of an experienced financial professional who can assist with this. If, however, you do feel this would be a good option for your situation, we recommend visiting bankrate.com to explore and compare different credit card options.
Finally, if your debt feels like it is out of your control, it may make sense to meet with a financial professional who can assist you by building a plan, or who can assist you in making the decision as to whether or not to consolidate or refinance your loans.
Not sure where to start? Check out our 10 Tips to Payoff That Debt!
Get a Head Start for Next Year
While it may feel too soon to be thinking about Holiday season 2020, you can do yourself a huge favor by beginning to prepare for this crucial time of year NOW. Take a few moments and calculate your total spending from this past season. Then, set a goal for your holiday spending budget for next year. What adjustments will you make? How will you work to meet your goal?
Once you have a new holiday spending goal in mind, take the time to break this amount down into manageable pieces. To use round numbers, let’s say you plan to have $1,000 before the key holiday season starts next year (or, November 1st). You would then want to break that goal amount into small chunks as savings goals for each month leading up to this timeframe. So, you could set small goals to save $100 each month from January through October in order to meet your savings goal by holiday season.
Need help getting started? Automate your savings! Set up an automatic transfer from your checking to your savings account each month to hit your goal. This way, you’ll be making progress towards your goal without having to remember to save each month.
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