10 Tips For Dealing With Holiday Debt, Part 2

Borrowing, Credit Cards, Credit Rating

Holiday Debt On the Increase

Are your credit cards still smoking from holiday overuse? Based on a recent MagnifyMoney survey, it wouldn’t be surprising.

Consumers who financed their holiday spending averaged $1,325 in holiday spending debt – a sharp increase from 2018’s $1,230, 2017’s $1,054 average and 2016’s $1,003 average. Increases in wages and consumer confidence are at least partly to blame. Did a personal increase in wages and confidence lead you into a mountain of holiday debt?

We’ve given previous tips on dealing with excessive holiday debt. You’ve got more debt – so we’ve got five more tips, for a total of 10.

6. Slice Your Budget Further

To pay off holiday debt, you can’t settle for paying off your monthly balance. You need a budget surplus to pay down last year’s overspending – so you must cut spending further. Re-examine your budget for places you can save. We’re assuming you took our previous advice and created a reasonable budget – but if that budget didn’t get the job done, it’s time for another layer of cuts.

If you’ve forgotten to track small daily expenses, it’s time to start again. You may be amazed at how much you’re spending on the occasional coffee or mid-day snack.

7. Examine Why You Overspent

If you couldn’t stick to the budget you previously set, ask yourself why. Was the budget not realistic, or could you just not resist holiday bargains? How can you establish spending discipline? Do you need a trusted friend to swat bargains out of your hand before you reach the counter?

Find your own method to establish discipline, whether it involves bargain-swatting friends or internal willpower.

It may help to stick with cash or debit cards and avoid credit entirely. You’ll have a self-imposed spending limit (but stay away from the ATMs).

Do you just have to have a credit card at your disposal? Consider loading a pre-paid credit card with a set amount that reflects your monthly budget and reload the card each month with the necessary funds. You’ve essentially made a credit card that provides a hard limit like a debit card, without the attachment to a bank account.

8. Negotiate With Your Credit Card Company

Your credit card company won’t make your balance disappear, but they may be open to giving you a better rate or a promotional offer to save on interest charges.

If you have a decent credit history and can cite alternative offers from other credit card issuers, your card issuer will realize you’re serious about reducing your interest rate and are capable of getting a different card.They’ll be more likely to extend a better offer – especially if you qualify for balance transfer cards from other issuers.

With a higher balance, you aren’t negotiating from a position of strength – but what have you got to lose? The worst that can happen is your credit card company refuses, and you’re no worse off than you already are.

9. Make All Payments On-Time

Outside of uncontrolled spending, the quickest way to sabotage a debt recovery plan is to miss a payment. You’ll incur fees, lose your grace period on interest charges, and possibly trigger high penalty annual percentage rates (APRs). Interest charges will quickly pile up and make debt reduction even more difficult.

In addition, on-time payment history is one of the most important factors used to determine your credit score. Your score will suffer – making it more difficult to negotiate a better credit card offer. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

10. Establish a Savings Mindset

You look over your holiday spending and resolve to never overspend again. Like most New Year’s resolutions, this one probably won’t live to see February.

True budget discipline requires a savings mindset throughout the year. Once you get in the habit of spending less, why stop? Use a continuing surplus to build up your emergency fund and other savings funds (retirement, college, etc.).

Don’t fall into the trap of using your emergency fund for non-emergencies. A broken leg is an emergency. A fancy new car or an extravagant vacation is not.

The Takeaway

We’ve given you suggestions to overcome holiday debt, but the best cure is prevention. Don’t overspend in the first place.

It’s difficult to control spending throughout the year, but it’s even more difficult during the holiday season. Temptations are everywhere. That’s why a budget is even more important during the holidays. Set your budget early and outline gifts to match that budget. The earlier you start, the more likely you’ll find deals on the items you’re looking for.

If you do overspend, treat it as a life lesson. Address it as soon as possible and learn from your experience.

We all make occasional financial mistakes. Don’t let them snowball into a debt crisis.

If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.

Photo ©iStockphoto.com/centralitalliance

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