The holidays are done, the gifts have been unwrapped and all you’re left with in the new year is a big fat credit card bill. From gifts to holiday parties to flights to family, it’s easy to spend more than you were anticipating in the span of a few short weeks. But don’t worry — we have the tips and tricks you’ll need to cure your cash flow hangover.
“If you’re running out of money before you run out of month, you’ve met the debt wall,” says Michael Bovee, who’s worked in debt relief for more than 20 years and is the co-founder of Resolve. Thankfully, there are plenty of ways to dig yourself out of holiday debt. Here are six tried-and-true ideas.
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1. Set a budget
Truth be told, holiday debt isn’t really any different from any other credit card debt you’ve accumulated. And, as a result, the same steps are required to dig yourself out. You’ll need to free up extra cash to put toward your debt, so start by understanding how much money you have coming in and going out each month. Once you have a handle on your spending, you can create a budget that will allow you to trim expenses so you can apply the extra cash towards your holiday debt.
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2. Get serious about repaying holiday debt
Commit to a debt repayment plan that you’ll hold yourself to each month that allows you to pay more than the minimum toward your debt. That way, you can pay down the debt as quickly as possible and pay as little interest as possible. Bovee recommends debt guru Dave Ramsey’s debt snowball method.
How it works: List all your debts from smallest to largest if you’ve accrued holiday debt (or any debt) across multiple credit cards. Focus on paying off the smallest debt first while still paying the minimum on any other credit card balances you have. Once that first debt is paid off, use the money you were paying on the first card and add it to payments on the next card. As you go, your payments will “snowball” into bigger and bigger amounts.
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3. Consider a balance transfer
If it makes sense, you may want to consider transferring your holiday debt to a new card that offers an introductory 0% interest rate on balance transfers. That will allow you to pay down your debt interest-free. As long as you pay it off before the offer expires, that is. If you don’t plan on paying it all off, make sure you know what the interest rate will be once the offer expires. Many of these cards also charge balance transfer fees (typically 3 to 5% of the amount you transfer).
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4. Go on a cash diet
If you continue living above your means while trying to pay down your debt, you’re only going to keep the holiday debt hangover going even longer. Instead, vow to stop using your credit cards and switch to cash. This will make it easier for you to stick to your budget (no mindless charging!) and avoid falling back into bad habits.
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5. Talk to your creditors
If you’ve dutifully paid your bills on time in the past (and sometimes even if you haven’t), creditors may be willing to lower your interest rate simply because you ask. While it may not yield a significant savings, any reduction in the interest you have to pay is still less money you have to pony up, so be sure to ask them if they can help reduce your rate.
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6. Pick up a short-time side hustle
According to MagnifyMoney’s holiday debt survey, the average consumer racked up $1,230 in holiday debt at the end of 2018. If you find yourself in the same boat, you may want to consider picking up a temporary second job or side hustle solely to pay down your debt quickly. That can mean a huge cost savings in interest, especially for the 22% of survey respondents who only make minimum payments on their debt, or the 27% who take five months or longer to pay off holiday debt.
“I jump in a lot of Ubers and Lyfts, and I always ask, ‘Hey, what brought you to driving?’” Bovee says. “One driver told me, ‘I’m just trying to pay off my holiday debts. I’ll probably stop when I’m done.’ There’s no shortage of side hustles in this gig economy if you’re motivated to knock down a temporary higher amount of credit card debt after the holidays.”
Find a gig that works for you and figure out how many hours you’ll need to put in to get out of the red.