Half of Americans expect holiday debt — 6 steps to recover fast in the new year

Between hosting dinners, buying gifts and travel, the holidays can get pretty expensive. And if you’re finding that your paycheck just doesn’t go as far as it once did, credit cards or personal loans may seem like the easiest way to extend your income to afford everything the holiday season demands.

But come January 1, you’re faced with a new reality: It’s time to pay up — and sometimes the balance can be overwhelming. This is called the “holiday debt hangover,” and if you already feel the financial stress mounting, read on for six tips to overcome it.

Sometimes the uncertainty of not knowing exactly how much debt you have adds to existing financial stress. Rip off the band-aid and look at your credit card statements to see how much you spent. Knowing exactly where you stand can help you come up with a reasonable repayment strategy. For instance, it lets you decide how much money you need to budget each monthly to pay it off completely.

You can also take it a step further by analyzing which categories you spent the most in. Maybe you spent hundreds trying to host the perfect holiday party or family dinner. Or perhaps you’re a big gift giver and always go a little overboard buying presents. This information tells you where you might overspend again next year, so you can start preparing a sinking fund as early as possible.

Avoid adding more fuel to the fire. We can’t avoid necessary expenses like rent and groceries, but we can hit pause on discretionary spending like brunch with friends, going to the movies, buying a new video game or buying ourselves little treats throughout the week.

These can add up fast and either add to your existing debt or take away from money that would be used to pay down your balance.

If it’s usually difficult for you to fight the urge to splurge, there are a few mental frameworks you can use. Wait at least 72 hours before you hit checkout when online shopping. This way, you can make sure you actually want or need the item before buying.

You can also implement no-spend days throughout the week to make it easier to fall into the habit of not buying discretionary items.

You can lighten the load on your credit card balance by getting refunds when you return items you bought but no longer want. Maybe the new stand mixer you thought you needed isn’t all it’s cracked up to be. Or maybe the sweaters you got on a whim don’t fit right.

Avoid letting these items sit around for too long. Check each store’s return window and make sure you initiate returns promptly. The Orderly app links to your email and automatically tracks your orders. It’ll notify you when items ship, arrive and when the return window closes so you don’t miss the deadline.

You may not always get back hundreds of dollars (unless you bought some pretty pricey items) but every bit can go a long way.

There are a few popular repayment methods designed to work for different scenarios — you’ll want to pick the one that works best for your situation.

Debt snowball method

If you have debt balances across multiple credit cards or other forms of credit, the debt snowball method requires you to aggressively pay off the one with the lowest balance first while paying the minimum on all others. Then, when that’s paid off, move to the one with the second highest balance and repeat the process.

The quick and regular wins when you pay off each balance keep you motivated and on track.

Debt avalanche method

The debt avalanche method involves starting with the debt with the highest interest rate and paying it off aggressively while you make the minimum payment on all other balances. And like the snowball method, you move through to the next one and repeat the process.This method lets you save the most on interest.

Balance transfer credit cards

You might be thinking, “why would I open yet another credit card when I’m already in credit card debt?” The interest is part of what makes paying off credit cards so tough. You make a meaningful monthly payment but then a chunk of that goes toward interest, not toward paying down the principal. So you’re left paying for those purchases for longer than you’d like.

Balance transfer cards let you move the balance from one credit card to another but the new card gives you a period of time to make interest-free payments. This lets you save on interest and eliminate that debt quicker.

The Citi® Diamond Preferred® Card offers 21 months on balance transfers — nearly two years to pay off your balance. The Capital One VentureOne Rewards Credit Card is another strong choice for balance transfers for its low balance transfer fee and a 15-month interest-free period on balance transfers.

Remember that balance transfer cards are a tool but they should still be used carefully so you don’t put yourself right back into that debt cycle after you’ve worked so hard to pay off your balance.

If you’re still struggling to recover from the holiday debt rut, it may be time to consider applying for a debt relief program — however, there are a couple of things you should know before considering this route.

1. In order to be eligible for many debt relief programs, you need to show proof that you’ve consistently fallen behind/missed debt payments for a certain number of months.
2. You need to meet a minimum required debt balance to qualify, which is usually around $7,000.
3. Once enrolled, you’ll be asked to stop making debt payments while the company negotiates on your behalf. During this time, your credit score may take a hit.

So if your holiday spending didn’t quite dig you into this deep of a hole, debt relief programs likely aren’t the best fit for you. But if the holiday debt is becoming the straw that’s breaking the camel’s back despite your best efforts, debt relief programs may help you more than you might think.

New Era Debt Solutions is one of the more affordable programs out there since their settlement fee starts at 14% of the enrolled debt balance (other programs are a bit higher at 15%).

National Debt Relief accepts minimum debt balances of at least $7,500, while many other programs require you to have at least $10,000 in debt in order to be eligible.

If you need more personalized help, you can’t go wrong with working one-on-one with a financial professional. Certified Financial Planners (CFPs) can help you take a holistic view of your money and create a custom plan for you to manage your holiday debt.

But if your holiday debt is negatively impacting your credit, it can be a good idea to speak to a credit counselor. The National Foundation for Credit Counseling can guide you through a debt management plan as well as other counseling options if you’re struggling.

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