If you’re worried about holiday debt in the new year, you’re not alone. Roughly 36% of people in the U.S. have reported carrying holiday debt, putting an average of $1,181 onto credit cards or store cards. High inflation and interest rates (20.30% as of December) make it important to get on top of a repayment plan.
If you’re feeling the squeeze, here are some tips for tackling holiday debt in the new year.
1. Add up what you owe
Looking at everything you owe and calculating that with interest gives you an overall financial picture, so you can plan efficiently.
2. Make a budget
Budgeting is an important part of money management and can help you know where to cut back. A system like the 50/30/20 rule helps take the guessing out of budgeting. This system proposes that you put 50% of your income toward your expenses, like your mortgage, rent, car payment, and groceries, 30% toward entertainment and gifts or fun purchases, and 20% towards your debt and savings. Budgeting apps can also help you track your expenses.
3. Make your highest-interest card a priority
Finding a repayment method that works for you can help keep you on track. However, with interest rates still high, paying the card with the highest interest rate first can help save money. Following the debt avalanche method, you pay the minimum payment on all your cards and then put leftover money toward the card with the highest interest rate, helping you pay it down quicker. When that’s paid off, you move on to the next card with a high interest rate.
4. Look for extra income
Asking for a raise or finding a freelance gig can bring in the extra money you need to pay down your debt more quickly. Putting any financial gifts you receive toward your debt can also help with repayment.
5. Talk to a credit counselor
Making an appointment with a credit counselor through a certified credit counseling agency can help get you on track, especially if you’re struggling. When you meet with a counselor, they’ll help you build a budget specific to your needs. They can also help you enroll in a debt management program, allowing them to negotiate with your credit card company to reduce your interest rate and consolidate your debt into one monthly payment.
Having a plan early in the year can get you back on track sooner rather than later. But remember, paying off debt takes time, so be persistent, and you’ll get there.
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