Whether it’s stocking up on gifts for friends and family or running up a bit of credit on a holiday house rental, Christmas can often be a time where we spend a little more than we should. They don’t call it the silly season without good reason. If you find that you’ve overspent this past Christmas, here are 9 tips on how to pay off Christmas debt and beat the Christmas blues quickly and easily.
(Updated January 4, 2018)
1. Make a list
Christmas might be over, but now it’s your turn to be making a list (and checking it twice). Open up a spreadsheet or grab a notepad and pen and make a list of everything that you owe. This should include the amount, the credit card or loan it’s associated with, and when final payment is due.
Don’t worry if you feel a little naughty going over what you owe. The most important thing is to be thorough and create an itemised list of all the debts you accrued over the holiday season.
2. Put a halt to unnecessary spending
While holiday sales can be alluring, if you want to pay off that Christmas debt now is the time to put a halt to discretionary purchases.
Get in control of your finances by limiting outgoing expenses to necessary bills and expenditure. It will help you pay off your debts much faster and easier. This can mean cutting on take-out meals, outside dining, cable subscriptions, app subscriptions like Spotify, game-related purchases (Clash of Clans?), manicures, hair treatments and the like, until your debt is paid off.
3. Make a payment plan
If you’ve racked up more debt than is feasible to pay back in a few weeks, then you’ll need to organise a payment plan. Identify how much you can part with per week (or fortnight).
If you owe on multiple credit cards or personal loans, target those with higher interest rates first and work your way down.
You can also do the snowball method popularized by DaveRamsay. It’s done by making payments on all your debts starting with the smallest one, then work on the next bigger one until you arrive to the largest debt. When it comes to the largest debt, you pay it with all the money you have until it’s gone.
4. Limit additional loans and borrowing
While you’re paying off the debt you’ve incurred over the holiday season you’ll want to avoid taking out additional loans. Also avoid extending your credit or borrowing more money. Otherwise, you run the risk of falling into a debt spiral.
Ideally, you don’t want to incur any more debt at all. While we can’t always live in a debt-free world, it’s best if you avoid further debt over the first few months of the year.
5. Create a budget for the first quarter of the year
You’ll want to pay off your debt as quickly as possible, but you don’t want to feel the squeeze for too long. Create a budget for the period from January through until the end of March. Make sure you allow yourself a realistic amount of money for things like entertainment. Allocate some money to reward yourself at the end of March for all of the saving you’ve been doing!
Having that budget laid out in front of you will act as a motivational touchstone when you’re feeling the pinch, and give you something to look forward to.
6. Consolidate your credit card debt
Consider consolidating the debt under a single card with better rates. Balance transfers can be helpful in paying off that excess Christmas spending.
Not only do you have a better overall rate, but it’s genuinely easier to manage debt on one card than it is spread across multiple cards and accounts.
7. Estimate your tax return
When January rolls around we’re only six months from tax time. If your debts are considerable and you’re not sure if you can pay them back within the first quarter of the new year, your income tax return could provide relief down the track.
Calculate an estimate of what you might get back from the tax man and factor it into your debt payment plan.
8. Start saving for next year
Once you’ve paid off your debt it’s time to start saving for next year, so you can avoid the debt squeeze come next holidays.
First, work out how much you spent on gifts this time around, that can be your target. You may want to adjust based on anything different (maybe you hosted Christmas this year, but someone else is next year).
Next, work out how many months are left before Christmas. It’s as simple as dividing the amount you need by the number of months. The figure is how much you need to save per month. Easy!
9. Consider doing secret Santa next year
Buying gifts for everyone you love and care about is great, but it can also be expensive. One way to avoid Christmas debt in the future is to participate in a Secret Santa gift exchange.
Everyone in your family or friendship group picks someone’s name out of a hat. Working on an agreed upon budget, gifts are given anonymously. Not only is it a lot of fun, but it seriously reduces the amount of spending required on holiday gifts. That’s one surefire way to avoid going into Christmas debt next holiday season.
10. Sell what you can
In order to pay your debts easier, you can sell the items you don’t need anymore but still are good enough to be useful to others. Set a day on when you want to go over your house and check on unused items which you can sell online or maybe a garage sale.
These items can be kitchen gadgets that you are not using, old toys, clothes you seldom use, accessories, and others.
11. Get a part-time job or any side income
If you have an extra time getting a part-time job like freelance jobs, it can help you in getting extra money to pay off your debt.
Examples of these part-time jobs are freelance writing, photography, helping a business with their marketing, IT related work, doing errands like personal shopping and the like.
By following these 11 simple steps to pay off Christmas debt you’ll not only provide yourself with a little financial relief, but also set yourself up for a debt-free Christmas next year!
If you’re in serious debt, don’t worry! Free, confidential help is available from Credit Counsellors Australia. Just call the number below or send us an email.