By Neena Vlamis, President of A and N Mortgage

Even though you might have cut back on travel this holiday season, you probably still felt like treating yourself and your loved ones. That often means you bought gifts you might not have been able to afford.

It’s so satisfying to buy the “perfect” gift and make your recipient over-the-moon happy. Unfortunately, those feelings of satisfaction aren’t likely to last as long as your credit card bills. With the holidays over, it’s time to pay the credit card piper. 

In this article, we’ll give advice about digging yourself out from under this year’s holiday debt. Then we’ll look ahead to next year and help you make a plan for avoiding debt in the first place.

How to Get and Stay Out of Post-Holiday Debt

Digging Yourself Out Of Holiday Debt

Whoops, you did it again. You spent too much on presents that you paid for with credit cards. You may have even maxed out your credit cards. Here are some tips to help you kick your holiday debt to the curb:

💡 Be kind to yourself.

There’s no need beating up on yourself about overspending during the holidays. Cut yourself some slack and move on. 2020 was an incredibly stressful year, and many people overindulged in such pleasures as food, alcohol, and shopping.

Once you’ve forgiven yourself for giving in to the temptation of overspending, you’ll be in a better frame of mind for Step 2: budgeting.

💡 Budget to pay off your holiday debt.

Yes, you have to be kind to yourself, but you also have to face facts. You ran up some additional credit card debt, and you need to pay it off. After all, you can’t print money like the government does. So ask yourself these questions:

  • How much new debt did you take on?
  • When would you like to have the debt paid off?

Your answers will inform your debt repayments. For instance, say you have a large circle of family and friends, and you ran up a $2000 balance spread over two cards. You want to pay the debt off as soon as possible.

Try again“as soon as possible” isn’t specific enough. Don’t overthink this; set a reasonable date. Let’s say you want to square away that holiday debt in six months. To pay off a $2000.00 debt in six months, you’ll have to pay about $334.00 per month, with some extra money towards interest payments. 

💡 Put your budget into action.

You’ve decided to pay about $350.00 per month. (If you want an exact figure, enter your debt amount, interest rate, and loan term using a financial calculator app.) Now go ahead and schedule those payments automatically. 

Remember that with each month you carry debt, the clock is ticking. If you come into a bit of extra cash, you can make an extra payment or so each month to squash that debt.

How To Avoid Going Into Holiday Debt Next Year

Now that you’ve gotten rid of the post-holiday debt, it’s time to plan ahead for the next holiday season. Here are tips to avoid getting yourself in debt in the first place:

💡 Reflect on your holiday spending habits.

It’s essential to take stock of not only how much money you spent on presents this past year but your motivation for overspending. Managing money well has a lot to do with a healthy mindset.

Did you spend out of a sense of obligation, a desire to rescue someone’s (or your own) 2020, or because you love to give gifts? If giving gifts truly gives you pleasure, you may want to keep your gift-giving budget on the high side. But if you’re giving gifts for any other reason, address your real needs and downsize your gift budget.

Yes, there’s that “B” word again—budget. You need to plan how much money to spend on gifts—and how to do it wisely—so you won’t get stuck in a cycle of holiday debt.

💡 Stick to your budget—within reason.

Say you plan to spend $1000.00 on gifts for the 2021 holiday season. That means you can spend about $83.50 per month on gifts. 

Maybe you find some great Black Friday or post-Christmas sale items, though. In that case, you might spend a good portion of your gift budget all at once. That’s fine, but make sure you reign in your spending during the other months. All told, keep your budget at or under the amount you determined.

Remember your previous post-holiday spending binge financial hangovers. The way to avoid those fiscal fiascos is to spread your spending throughout the year. 

💡 Avoid credit card debt.

Buying gifts with credit cards can have some benefits. It’s easier to return items bought with credit cards, and they offer buyer protection and perks such as airline miles. However, suppose you don’t pay off your credit card balance right away. In that case, you’ll wind up accruing interest, often at the rate of about 20% per year. Be kind to your future self and avoid that financial stress.

If you have lower-interest debt, such as a loan or even a home equity line of credit (HELOC), you can use those instead. Check with A and N Mortgage for affordable, versatile HELOCs.

Addition Read: Is It Beneficial To Turn HELOC Into A Fixed Rate Loan?

💡 Re-think your spending.

If you consistently have to put gifts on credit, you may want to re-think how you’re buying gifts. Don’t budget for gifts without actually carving money out of your paycheck or income source. Failing that, you’ll have to take on additional paying projects or forgo a few avoidable purchases.

Can you cut down on restaurant purchases? How about those expensive coffees? And maybe you can make some gifts instead of buying them.

Fast Fixes For Your Finances

Holidays aren’t the only reason people get into credit card debt, though. For whatever reason, people may wind up carrying more debt than they wanted to. Here are some ways you can minimize paying interest and get out of debt ASAP:

💡 Use annual bonuses and tax returns to pay down or off your debt.

Instead of blowing that Christmas bonus or putting it toward a purchase that’s fun but not necessary, bite the bullet and put most of it toward your highest-interest debt. This suggestion applies to any kind of windfall you receive, whether it’s a tax return or an additional stimulus payment. 

💡 Take advantage of lower loan rates.

This one isn’t guaranteed, but it doesn’t hurt to ask your lender for a lower rate. If the lender says no, maybe it’s time to refinance your car or house. Beware of extending the term of a loan; make sure to do the math before you take this step.

💡  Turn your closet clutter into cash.

To pay off debt, you need more cash. That cash is often hiding in plain sight in your closet in the form of things you no longer want or need.

First, you’ll need to identify what items you don’t want or need. You can start with your latest holiday gifts. Are some of those items just not for you, and you don’t think you’ll ever use them? If possible, take them back to the store for a refund. And if you can’t get a refund, sell them!

If you haven’t purged your closets and storage spaces lately, you’ll likely come across some finds there, too. Pull everything out and ask yourself whether you want or need each item. Then price the gotta-go items realistically and put them up for sale. You might get decent pricing for upscale clothing at online resale sites.

💡 Avoid using credit cards.

The convenience of credit cards comes with a price. Use credit cards responsibly, and avoid carrying a balance that will sap your financial strength.

Seek Professional Advice For Long-Term Financial Planning

Although you may have racked up too much debt this holiday season, don’t beat yourself up over it. Do make a plan to pay off your debt in a defined period. In the future, decide how much money you should allocate each month to buy gifts, and avoid using credit cards.

It’s important to get out from under holiday credit card debt for several reasons. For one thing, keeping your available credit utilization low helps your credit score. You’ll also have more income available for long-term goals such as buying or refinancing a house. 

If you’re interested in buying or refinancing a house soon, please contact the professionals at A and N Mortgage. We’d love to help you turn your dreams and plans of buying or refinancing a home into reality!

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.

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