In December, the actual numbers racking up on your credit card bill can be overlooked in a flurry of happy hours and secret santas, bows and free shipping and this is perfect present options for loved ones. But when January rolls around and you see a balance that’s far higher than you anticipated, straight-up panic can set in.
Taking a serious look at your spending habits can help you shore up a financial strategy that can help you save money year-round, and truly work toward your long-term financial goals.
The good news: Holiday overspending happens to the best of us—according to a 2017 survey from Deloitte, the average consumer spends over $1,000 on gifts, a figure that doubles to over $2,000 if they live in a household earning $100,000 or more.
But there is a silver lining: Taking a serious look at your spending habits can help you shore up a financial strategy that can help you save money year-round. Here, the best ways to pay down your debt fast—and get on more solid financial footing for the year ahead.
When bills look overwhelming, many personal finance experts recommend the “debt-snowball” method. In this, you put all your energy into paying off the smallest debt first, and then move upward to the larger debts. During this time, you’re paying the minimum on all the other bills, but putting as many resources as you can toward the smaller bill (even if that bill has nothing to do with holiday shopping).
The “debt-snowball” method works because it cranks up your motivation, and shows you just how much you can put towards debt.
The “debt-snowball” method works because it cranks up your motivation, and shows you just how much you can put towards debt. For example, it may be tough to knock out a $5,000 bill in one month, but a $500 bill, with work, might be reasonable. Put all your resources toward the $500 bill, pay it down in a month, and you’ll realize it is possible for $500 a month to go toward paying down debt. That $500 can then go toward the larger bill, helping you attack it faster.
Part of the reason you may have overspent on the holidays is because you truly didn’t know how much you had. In that case, it’s critical this month to learn how to budget. While “budget” may sound about as fun as “root canal,” budget believers say learning how to implement a budget in their everyday lives is a game changer.
Plus, having an emergency fund to protect you against the unexpected can actually be an important ingredient in staying out of debt in the future. After all, if you don't have any fallback cash, then where are you going to come up with the money to repair a broken car or pay for an unexpected medical expense? More debt?
Some people like a “zero-sum budget” while others rely on the “envelope system.” Apps can assist you; research to find the one that speaks most to you. But setting aside a few hours to set one up means you no longer have to do mental math every time you hit the grocery store or gas station.
Call your bank or go online and put freezes on your credit card. While you could take the freeze off in case of an absolute emergency, like a car breakdown, not being able to pay on plastic can help curb spontaneous purchases. Purchases will require foresight. If you have a balance on your cards from overspending on the holidays, the points or bonuses you accrue from using plastic aren’t likely to offset the interest paid on the card. For the month, stick to debit or cold hard cash.
In a similar vein to the tip above, clear all cookies and auto-pay information from your laptop—yup, even for online shopping destinations you use several times a week. Having to manually input all your financial information can help you deter purchases.
This is a good time to see what you’re paying for, especially if you have several auto-subscriptions to music streaming services, dating services, or monthly food prep or grocery deliveries. Print out your monthly bank or credit card statement (yes, on paper) and highlight every auto-subscription. Now, it’s time to cull the list. You may find a few that are duplicates (do you need two music-streaming services or dating sites?) and all that cash can go towards paying off your debts.
It’s not realistic to assume you’ll do nothing until all debts are paid off. It can be a good time to assess how you’re spending your money, with an aim to cut your monthly fun budget by at least half. Buy coffee on the way to work every day? Cut that habit to two times a week. Go out to dinner or order take out twice a week? Cut that to once a month. You might also try a money-saving challenge to see how low you can go. Any saved money goes directly to paying down your debt.
A lot of people assume that debts can be knocked out by taking on another job. And they could. But it’s important to weigh the time investment (and capital investment, if there is one) for trying to get a side hustle off the ground. Instead of trying to start something new, it may be smarter to put all that time and effort into cutting down on expenses, selling unused gear or furniture on neighborhood listservs, or taking overtime at your job, if offered.
One reason our debt can get out of control is due to “lifestyle creep”—we gradually spend more money over time. This is often because we’re making more money, but one easy way to get on track is to spend your cash the way you did when you were working at your first real job.
Back then, you may have saved for one or two dinners out a month and invited friends over to socialize rather than meeting at bars or restaurants. You may not have had a gym membership and DIY-ed workouts at home or made your own coffee. Whatever it is, adopt some of those habits for the month. It’s an easy, practical way to quickly pay down debt.
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