Every January millions of Americans receive their credit card statements and experience a state of severe sticker shock. It's the day of reckoning when Americans come to terms with how much they actually spent during the holiday season.
While we're still waiting on the exact numbers for the 2016 holiday season, we do know that this is a traditionally debt heavy time of year. We also have numbers from previous years to give us a good idea of how Americans stand in regard to their holiday debt.
Consumer Debt Statistics
According to a recent RetailMeNot Shopping Trends Report, 38% of consumers carried over debt from their 2014 holiday shopping into the 2015 season. That means over a quarter of Americans were already in debt from holiday shopping before the 2015 season even began. The likelihood that these Americans only added to their debt is quite high.
Fortunately, debt doesn't have to be forever. You may have spent too much in November and December, but you can always rectify the situation. Here is what seven financial experts have to say about overcoming post-holiday spending debt.
1. Don't Beat Yourself Up About It
Many people have a tendency to beat themselves up over holiday debt, but most financial experts agree that this isn't necessarily beneficial. In fact, feeling sorry for yourself or lamenting past financial mistakes can actually hinder you from making any progress.
"Many of us spend more than we think we will over the holidays and end up with credit card debt in January that we didn't count on. First, don't beat yourself up about this." says Janet Tyler Johnson, CFP and President of JATAJ Wealth Management.
"Figure out why you spent more than you planned on and adjust your next year's budget accordingly," says Johnson. The idea here is that you see what went right and what went wrong during the holiday season so you don't find yourself in the same situation again later. Sometimes the best way to get out of debt is to stop accumulating it in the first place.
2. Automate Your Payments
After you've forgiven yourself and looked into why you got into debt, it's important to start making a plan to repay the debt.
According to Johnson, one of the easiest ways to do this is to automate your credit card payments. Her approach is easy, "Simply take the amount you owe, divide it by 12 months or six months or the quickest time frame you can to get the debt paid off, and then have these monthly payments automatically deducted from your checking account. The result is that you set it and forget it so you don't add to the problem by experiencing shame or remorse every month until the debt it paid off. "
3. Cut Expenses and Use the Extra Money to Pay Debt
There's a good chance that you may be spending money on things you don't actually need on a monthly basis. Or, perhaps there are areas where you can cut your bill - such as with groceries or the light bill.
Rachel Hernandez, successful real estate author and personal finance expert, recommends finding where you may be leaking money on a monthly basis. "Figure out your finances first. Write down your monthly recurring expenses. Compare it with your income. Are there areas you can cut back? The amount left over should be used to pay off your credit card debt."
4. Use a Part of Your Savings
Hernandez also recommends using a percentage of your savings to pay down the debt. Sometimes savings are there to get us out of a bind and perhaps this may be one of those instances.
However, only do this if you can actually afford it. If this cuts into the three to six months of living expenses you should have saved up for emergencies then don't use it to pay debt. You don't want to find yourself without money should a real emergency come up, otherwise you'll end up right back in debt (Ex. food is more important than your credit card debt.)
Additionally, you want to make sure you don't get in the habit of dipping into savings to pay off debt. This is okay for a one-off event but not something you should be doing every month.
5. Find Ways to Make Extra Money
Sometimes the only way to pay off holiday debt - or debt of any kind - is to find ways to make extra money. You can nickle and dime your expenses all you want, but if you really want to make an impact on your debt you may need to increase your income.
My best advice for someone trying to overcome post holiday debt is to find ways to make extra money to put exclusively toward that debt," says Jason Cabler of Celebrating Financial Freedom.
While making extra money sounds like an impossible feat, it doesn't have to be. Cabler advises finding ways of making money in any way that you can, "Work extra hours at your job, get a side job, or start a side business and knock that debt out as quickly as possible."
6. Plan Better for the Future
While researching for this article, a common piece of advice that kept coming up multiple times was to avoid getting into holiday debt in the first place.
While it's not exactly a way of getting out of debt, you also don't want to be one of the many Americans who add on to their holiday debt from one year to the next. It's a slippery slope and according to Ryan Guina of Cash Money Life, it's something that can be easily avoided.
I know this is easier said than done," comments Guina. "But annual events like the holidays can be fairly easy to plan for. Gather your credit card bills, add up how much you spent on holiday gifts this year, then divide by 12. If you can save that much money per month, then you can avoid going into debt next year."
Financial Wellness Coach, personal finance blogger and podcaster Steve Stewart agrees. "Go the extra mile to make sure this never happens again: Delete your credit cards from online accounts, use a debit card when cash isn't feasible, and put $50 each month into a Christmas Club savings account at your bank. In 10 months you will have $500 of your own money for next year's holiday season and not need the plastic crutches (credit cards)."
7. Use Your Tax Refund
With the federal tax-filing deadline just around the corner, many people are already wondering what they are going to use their refund for. If you find yourself in some post-holiday debt, you may want to consider using your tax refund to pay it off. At least that's what Jay S. Fleischman, bankruptcy and student loan attorney and founder of Consumer Help Central, suggests.
"File your taxes as soon as you possibly can and use your refund to pay off the debt." says Fleischman. If you are able to wipe out the entire debt with your refund he suggests putting what would have been your monthly debt payment into savings so you have cash for the next holiday season.
If you aren't able to wipe out your debt with your tax refund, then you should make a plan to pay it off over the twelve months or sooner. Fleischman also suggests that borrowers stop using their credit cards so they don't add on even more debt to their balance.
8. Try the Debt Snowball Method
The Debt Snowball Method is a favorite of financial experts and is actually quite effective. The idea is that you use any extra money you have during the month and put it toward paying off your smallest balance first. Once you have that balance paid off, you move on to the next smallest balance and so forth.
This is the method Jessica Garbarino, blogger behind Every Single Dollar, used to pay off $56,000 worth of debt - much of which was on credit cards. She also started her debt-free journey shortly after the holiday season.
According to Garabino, this is the best possible way to pay down debt effectively, "You'll be amazed at how quickly you can pay off the first few balances with the focused intensity you are applying and it will give you the momentum and encouragement to continue with the larger balances."
9. Consolidate Your Debt
Consolidating your debt is an option if you're carrying debt on multiple high-interest credit cards and are having a difficult time managing all of it. While it's not a solution that should be used all the time, it can be helpful if your situation is more extreme.
For example, are three different cards maxed out and you're having an issue even making minimum balances? Then consolidating your debt may be a good idea. In this case, have to pay off one large lump sum may be easier than trying to manage three different accounts.
The most common form of consolidating debt is to take out a personal loan. The loan is then used to pay off the balances and the borrower pays back the personal loan with monthly payments. This can make paying off debt more manageable and often save on the total amount of interest. It's important to compare the top providers to be sure you choose the right loan for you. Check out our reviews of the best personal loan rates.
While you may feel the effects of your holiday spending in the form of a high credit card balance, there are several methods you can use to pay it off as soon as possible. Once you've done that, make a plan in order to ensure that you don't get yourself into any future holiday debt. Remember, we know that the holidays are coming and you can budget for them ahead of time.