The tree might be taken down and the decorations tucked away, but the Christmas debt you racked up may still be decking your halls. If you are in this situation, don’t worry, you are not alone. According to ABC News, U.S. credit counseling agencies see a 25 percent increase in the number of people seeking help in January and February, and it’s because their holiday bills are piling up.
Get rid of your ghost of Christmas past with these tips:
Know how much you owe. The first step in tackling any debt is figuring out how far in the red you are. Write down every credit card balance and debt owed, and total them up. This is probably the biggest mental and emotional step—opening all those bills and reading the “amount due” line can be daunting—but it is the most important. You can’t efficiently pay down your debt if you don’t know how much you owe. Also, once you do this, you’ll probably find the rest of the debt-reduction process less daunting.
Make an aggressive budget for January, February and March. Paying down debt aggressively during the first quarter of the year will help avoid paying more in interest later on, and it’s also a great way to ensure consistency throughout your debt-repayment plan.
Combine your balances. Making small monthly payments on several different credit cards can make you go crazy. First, is logistically difficult, and second, it can take longer to see your progress, i.e. a shrinking balance. Shop around for credit cards that allow you to transfer your balance at a low or zero interest rate, and ideally, transfer all of your balances onto one card.
Snowball, if needed. If a balance transfer is not an option for you, the best thing to do is “snowball” your debt. This means making large payments to one credit card while continuing to make the minimum payment on the rest of the cards. Then, once the first card is paid off, send your largest payment to another card, and so on until your holiday debt is repaid. Another tip: start with the card with the highest interest rate and work your way down.
Track and celebrate your progress. Success is a huge motivator in debt reduction, and seeing it will definitely encourage you to keep up with your payments. Set milestones and celebrate in a small way when you reach them. For example, if you owe $3,000, commend yourself each time you pay off $1,000 by popping open your favorite bottle of $6 wine or taking a nice long bubble bath. For some people, merely ticking off another payment is gratifying enough!
What are your strategies for paying down Christmas debt? Tell us in the comments section below.