The holidays can be one of the most wonderful times of year, filled with joy, family and friends. But it can easily lead to overspending and debt, if you're not careful. Between gifts, travel, parties and more, the holidays can also be an expensive time of year. If you got into debt this holiday season, here are four ways to pay it off quickly.
1. Create a plan of action.
If you're in debt, you may be tempted to ignore the situation completely -- especially when it comes to holiday-related debt. After spending money on gifts, travel, and making the holidays cheery and bright, facing your debt can be a rude awakening.
But in order to tackle your debt, it's key to acknowledge it and create a plan of action. Jason Preti, Certified Financial Planner™ (CFP®) at Unleashed Financial, recommends taking the following steps.
1. Make a list of each credit card balance, the interest rate and minimum payment due.
2. Total your minimum payment, and determine how much more you can apply to it each month.
3. Apply the minimum payment to each card.
4. The next step depends on your preference. Either apply your extra payment to the card with the smallest balance or the card with the highest interest rate.
5. Keep doing this each month until you're debt-free.
6. Once all the cards are paid off, you are in the perfect position to start saving money. Start putting that payment into a savings account, create an emergency account and prepare for next season.
In addition, you can call your credit card provider and see if they can lower your interest rate. Typically, your provider will be more likely to lower the interest rate if you've been a long-time customer with a positive repayment history. If you have missed payments or have a low credit score, it may be more difficult. Regardless of your situation, it doesn't hurt to ask.
If that isn't possible and you have good credit, you may want to consider using a balance transfer card with a zero percent introductory rate to save money on interest.
"Some credit cards offer zero percent interest for a certain period. Transfer balances from other cards over and aggressively pay them off during that period," says Jeff Christakos, CFP® at Westfield Wealth Management.
This method is typically only a good idea if you can pay off your debt relatively quickly -- usually in a year or less -- or before the introductory rate expires.
2. Go on a cash cleanse.
If you're feeling a bit spent after the holiday season and find yourself in debt, go on a "cash cleanse."
A cash cleanse involves only using cash and not relying on credit cards, while reducing or eliminating some of your unnecessary expenses. To get on track, use only cash for three months and ditch the mall, restaurants or movie theaters. Now's the time to rein in your spending and only buy what you need with money you have.
The purpose of the cash cleanse is to get your spending back on track and create healthier financial habits around spending. Just as many people adopt new diets and exercise regimens in the new year, try out a cash cleanse to reboot your finances.
3. Sell your stuff.
Over the holiday season, you may have received unwanted gift cards or items you don't need or want. In order to pay off debt quickly, consider selling or returning some of the items you received over the holiday season.
In addition, now is a great time to purge your old items for the new year. You may be sitting on old items that you haven't used in years that could help you turn a quick profit.
To help you decide what to toss and what to keep, ask yourself these questions:
- What do I need?
- What do I want?
- Have I used this in the past six months?
Your answers can help inform your decision to sell something or to keep it. You can sell your items on Craigslist or eBay and sell unused gift cards on websites like Cardpool. If you have the space, consider a garage sale. Once you've sold your stuff, take your extra money and apply it to your debt repayment.
4. Get a side hustle.
Once you've cut back your expenses, you may hit a plateau with your progress. You've eliminated all you can, but you still aren't making the progress you want on your debt. If that's the case, consider earning more through a side hustle.
A side hustle is a term for any gig that is outside of your main job. For example, on nights and weekends, you could become a mystery shopper, a baby sitter, caterer and more. If you have any specialized skills, consider freelancing or consulting on the side.
Through side hustling, you can earn additional money that can go directly toward your debt. Some resources to get started include:
You can also use the power of social media to let people know you're looking for additional work. Oftentimes, your friends may be able to help you; you just need to let them know you're available.
Using these strategies, you can work to eliminate your holiday debt quickly. With persistence, budgeting and hard work, you can ditch debt in the new year and start with a clean slate. Then, to avoid debt during the next holiday season, start saving now.
"Set up a Christmas savings account and fund it throughout the year. Limit your spending to funds in the account," Christakos recommends.
That way, you can fully enjoy the holidays without any additional financial stress or baggage.
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