Now that another holiday season is behind you, and a new year is under way, it’s time to add up the damage. Many of us are surprised at how much holiday debt we have when we review our bills.
While you might have been happy to rack up the reward points during the holiday season, it’s important to realize that you need to pay off that debt fast. Otherwise, your interest charges will offset any benefits you receive from your holiday rewards.
As you prepare your finances for a new year, here is a 5 step plan for paying off your holiday debt a little faster:
1. Make Sure You Are Done with Debt Spending
Hopefully, your appetite for spending has been sated. If you want to get rid of any type of debt, you need to stop debt spending immediately. Make sure that you aren’t using debt to pay for any more purchases. You need to stop digging the debt hole if you expect to make any headway at all on your holiday debt.
2. List Your Income and Expenses
Next, list all of your income and expenses. What money do you have coming in? And where is that money going? List out all of your expenses, and make sure to prioritize them. You can use the last two or three months as a guide to where you have been spending your money. Put your mortgage payment, bills, groceries, and other obligations at the top of the list. Order your expenses according to how important they are.
3. Cut Out the Least Important Expenses
Be honest about how important your various expenses are. And be honest about some of your bills, like the grocery bill. Adding junk food to your grocery shopping isn’t necessary, so make sure you list your treats out separately from the food that actually gives you nourishment.
Now that you have your expenses listed with the most important items at the top of the list, you can get rid of everything at the bottom of the list. Cut out the expenses that aren’t actually helping your cause. These are things that will hold you back in your efforts to pay off your holiday debt.
4. Apply the Savings to Your Holiday Debt
Add up how much you are wasting each month on those unimportant expenses. You might be surprised at how much money you are wasting. Financial experts estimate that the average household wastes between 10% and 15% of its income each month. Cut out that waste, and then apply it to paying down your debt, and you could kick your efforts up a notch. Once that money is going to reduce your debt, instead of being wasted on unimportant things, you should see some solid results.
5. Look for Ways to Make More Money
Finally, to really put your holiday debt pay off efforts into high gear, look for ways to make a little more money. Whether you get a temporary part-time job, or start a side hustle or home business, or do odd jobs for a few weeks, you can earn more money and put it toward your holiday debt.
Remember, the faster you pay off your holiday debt, the less money you will spend on interest. And you will be back on the right financial track for the new year.