The Holidays are now behind and us and if you are like me, you are looking forward to shedding a few of those pounds that we gained from all of that Holiday eating. If we are fortunate and budgeted our money well, then weight is the only thing we want to lose in 2020. For some of us, we also need to lose the weight of that credit card debt that we managed to take on from all of the generous spending that we did over the Holidays.
According a survey conducted by MagnifyMoney, Americans took on an average of $1,325 in holiday debt in 2019. Here are a few of their key findings:
- 44% of consumers took on debt this holiday season, and the majority (57%) didn’t plan on doing so. Fifty-two percent of Generation Xers and 50% of millennials added holiday debt, versus just 36% of baby boomers.
- Gen Xers added the most debt — a whopping $2,076 on average. Millennials racked up $1,215, and baby boomers added $606.
- 78% of those with holiday debt won’t be able to pay it off after the Holidays, including 15% who are only making minimum payments.
Unfortunately, the additional holiday debt burden is in addition to the already high average revolving credit card balance of $6,849 that each American household already has.
If you have difficulty paying off your credit card balance each month and are one of the 44% of people who added additional debt over the Holidays, here are six tips to help you get out of and stay out of debt:
1. Commit to paying down debt
Commit to paying down your holiday debt over a specific time frame – the shorter the better as the longer you take, the more interest you will pay. Ideally Holiday debt should be paid off within 3 to 6 months. You should also avoid paying just the minimum monthly payment as doing so will only add years to your credit card debt. Make a commitment to also paying down your revolving credit card debt within a specific period of time. For some it could be one year and for others it could be 2 years or more. Whatever the time period, make it realistic and achievable.
2. Make paying down debt a family affair
This is a good time for you and your spouse to sit down and talk about your spending habits and goals. Determine how you got into this situation in the first place and figure out what you can do as a family to create positive spending habits so you do not get into this position again. Agreeing to pay down and staying out of debt is like losing weight: It cannot work without a firm commitment and discipline from everyone involved.
3. Pay off higher interest credit cards first
Priority should be placed on paying down the highest interest credit cards first. This would be private label cards like Best Buy, Nordstroms, etc. Once those are paid off, then focus on the next higher interest credit card and so on.
4. Cutback on other expenses in order to pay off debt
Because the financial priority will be to pay down debt, you should take a close look at your other household spending and reduce expenses in non-essential spending areas – especially in travel and entertainment: leisure, dining, travel, clothing until your credit card debt is paid off. Make a commitment as a household that you will cut back on spending until the goal of paying off both your holiday and revolving credit card debt is accomplished.
5. Plan Your Spending Wisely
To prevent having to get into future Holiday debt and re-living this cycle over again, you and family should plan ahead for next year’s holiday spending. Come to an agreement on how much you would like to spend on gifts for next year. For example, if that amount is $2,000, begin saving $182 per month now so on December 1st you will have $2,000 saved up for gifts.
If you know you would like to go on vacation or make a big splurge purchase this year, decide to save up for it now versus paying for it with your credit card. If you won’t be able to save all of the money for the big-ticket purchase in 12 months, agree to wait until the following year and resist the urge to use your credit cards. Of course, this will mean looking at your current spending and making the necessary changes to your existing budget.
6. Use Only One Credit Card
In order to manage your spending and minimize the possibility of getting into further credit card debt, use only one household credit card and commit to paying off the entire balance each month.
With proper planning, discipline, and the willingness to delay gratification, you should be able to pay off your credit cards in full each month and not have to incur Holiday debt ever again.
HAVE MORE QUESTIONS ABOUT HOW TO REDUCE YOUR DEBT?
This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.