Why Do You Need an Emergency Fund?
- Job loss or unemployment
- Medical or dental bills
- Home repairs
While the hustle and bustle of the holiday season may be over, post-holiday debt is the gift that keeps on giving. Discover’s 2017 holiday shopping survey showed that credit cards were expected to be the most popular payment method during the holiday season, with 32 percent of survey respondents planning to charge most of their holiday purchases to credit. If you charged your holiday expenses to a credit card, you could easily be stuck reminiscing over your purchases for months—or years—to come.
To avoid prolonging holiday debt stress, focus on paying your bills off at the start of the year. By going on a spending fast—or a holiday debt diet—you can eat away at your post-holiday debt and move on with your life. Sans the stress.
Holiday gifts may be the expense on your mind, but add in holiday travel, seasonal entertainment and the costs of decorating your home, and your holiday bill can surge. It’s a huge chunk of change by all accounts, but it’s not an insurmountable amount to pay off in four months.
If you’re ready to pay off your holiday debt for good, consider this monthly timeline that can leave you free of post-holiday debt by early May—just in time for the spring flowers to bloom.
Before you can tackle any problem (paying off holiday debt is no different) you must take stock of the situation. In this case, it’s how much you owe. Start by tallying up each of your holiday debt balances including credit card bills, balances owed on store cards and loans from family or friends.
Once you have your total debt amount, divide that figure by four to determine how much you need to pay monthly over the next 120 days.
The pain of paying off your holiday debt so quickly might have you on edge. If that’s the case, finding ways to earn more while reducing spending could help. Picking up a part-time job or more hours with your current employer can make your journey out of debt easier.
To avoid prolonging holiday debt stress, focus on paying your bills off at the start of the year.
By the time your third month hits, your holiday debt should be half gone. Congrats are in order, but don’t celebrate too hard. If you want to emerge debt-free, you must stay the course.
Continue saving more and spending less as you finish out your holiday debt diet. Try not to slack off as you near the goal; keep moving forward, and keep saving as much as you can.
As month four approaches, only a quarter of your original holiday debt should remain. Now is the time to really buckle down and pay off that post-holiday debt. Continue your reduced spending plan as long as you can, and avoid falling back into old, costly habits. The finish line is in sight.
After four months of hard work, you should be free of holiday debt and the burdens that come with it. What now, you ask?
If you want to avoid holiday debt next year, it’s best to start planning now. Using last year’s holiday spending as a baseline, start building a holiday savings cushion right away. If you have five months left to save $1,200 for next year’s holidays, for example, start saving $240 per month in a savings account ($1,200/5 months = $240). That’s about $60 per week.
If you plan early, you won’t have to pay off another round of holiday debt next year.
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1 Study by T. Rowe Price Retirement Plan Services.