We might be a month removed from the holidays, but for many Americans, the effects of gift-buying, travel plans, and holiday feasts are still very much present. The average American carries around $15,000 in credit card debt, and that doesn’t even begin to delve into the hefty interest rates that will also require payment. If you find yourself facing ever-mounting holiday debt, use these steps to get yourself back on the right track.
Plan a New Budget
Before digging yourself out of a debt hole, you have to ensure you’re not worsening it in the meantime. The best way to do this is to create a 12-month budget that will take you all the way through the next holiday season to ensure you don’t find yourself in a financial pickle again. Use an online service like Mint.com to make it easier on yourself, or enlist the help of a financial planner if you’re in need of specific guidance.
Use the Avalanche Method
If you’ve got multiple debts, you’ll have to make some decisions on which way you want to pay off first. While you should always be sure to pay the minimum dues on every account, you’ll also want to start getting rid of accounts completely. Many experts recommend the avalanche method, in which debtors list their debts in order of highest interest rate charge to lowest. Whatever excess money you have leftover for bills after paying the minimums each month should be dedicated to the top account on the list. Once that’s paid off, move to the next, and so on. Not only will this help you avoid terrible interest rates, it will also give you more peace of mind when you have less debt accounts to worry about.
The Great Purge
You may have money sitting around in your closet—literally. Make sure you purge items you no longer need and hold a garage sale to make some extra cash that you wouldn’t have had otherwise. These items aren’t limited to clothing. Consider old furniture, appliances, and any other items piling up dust. The more you can part with, the fatter your wallet will be. If items are too worn to sell, consider donating to charity. Often, you may be able to use these donations and tax deductions. You have to stop spending until you have your finances completely under control. This doesn’t mean denying yourself the necessities, but it does mean cutting out the non-essentials, like your morning coffee or gym membership that doesn’t get used. Cancel any subscriptions you don’t use or need, and check on automated payments to ensure you’re not paying for things you don’t need to be.
Put Your Card Away
If you have an issue with spending, leave your credit card at home. Simple and to the point. It may be convenient and get you what you need right away, but it’s only going to hurt you in the long run. Delete your credit card information from your web browsers to avoid frivolous online shopping that might be done on a whim, and always take a minute or two to determine whether or not you truly need an item, even if it’s a small expense. Don’t let the siren’s call of rewards or points inspire you to pick up that card.
Transfer Your Balances
Some choose to transfer their credit card balances over to a zero percent interest rate card from a company like Citicards.com. Check to be sure that you qualify for such an offer, and if accepted, pay it off as quickly as possible. You’ll need to determine whether or not the balance transfer fees will be worth this step.
Get Some Tax Help
If your holiday bills are piling up on pre-existing debt, and you’re worried you may find yourself in hot water with the IRS, see what a tax professional can help you work out. Using the services of a company like www.communitytax.com can help you navigate the fresh start initiatives the IRS put in place a few years back and determine which course of action is best for your individual needs. Whether it’s an offer in compromise or an installment plan, tackling your tax issues head on is the best way to deal—ignoring them could result in some serious consequences.
If you’re dealing with a financial hangover from the holiday months, now’s the time to start tackling your debt.