Now that we are squarely into 2022, we can start to look forward to all that the new year will bring us. What we won’t look forward to are all the credit card bills the post office will bring us. To help alleviate that holiday debt, let’s look at some tips that can help us get control of our finances.
Know Where You Stand
Now is a good time to take a snapshot of your financial status. The first step in the journey to financial security is understanding where you are starting. You may have one or more credit card balances to tackle. Find a place to jot down those totals. Take a look at your bank accounts and see where they stand. Ideally, this is a great time to review your monthly budget as well. You may need to make adjustments for higher minimum payments and you will want to know how such an increase might impact your other expenses. Things to ask yourself: can I dine out this month or not without adding more financial stress to myself? Do I need to scale back on luxury grocery items (my fancy cheese!) until I get these cards paid off? How much holiday debt am I willing to incur next year?
Once you know where you stand financially, then you can make a plan.
Decide What You can Pay
Now you want to take a look at the credit card provider’s minimum required payment. Make sure you can afford to pay that amount. Ideally, you want to pay more than the minimum. The faster you can pay off that balance, the less interest you will have to pay. There are several online calculator tools that can help you determine how much interest you’ll pay and how long it will take to pay off those balances making the minimum payment. This is important information to know so you can plan future expenses. Also, it is a huge motivator for paying more than the minimum!
If you find yourself in a situation where it seems impossible to make the required payments, talk to your creditor! Avoiding the creditor and doing nothing is the wrong choice. If they don’t know you are struggling, they can’t offer you any options. If they know, they will usually work with you to find a workable solution. Remember, they just want the money you said you would pay. It is in their best interest to help you find a way to pay it. This might involve freezing your card use while balances are reduce.
Look to Increase Income or Reduce Expenses
Whenever your budget is getting tight, explore how to change the numbers. If you can increase income in some way, that can alleviate stress. Taking a second job or adding contract work like as a hired driver for an internet service can be key to financial survival. Just be careful of “lifestyle creep.” This is a term that describes how those little extras in life tend to creep into our routines once we can afford them. Things like a drive-thru latte regularly instead of making coffee at home contribute to lifestyle creep.
Another option is to reduce expenses where possible. You might reduce subscriptions to video or music streaming services to lower expenses. Maybe you decide to forgo that weekly pizza night and cook for yourself instead to save money. Is it time to cancel that gym membership we never use? There are lots of obvious and creative ways to lower those monthly expenses so you have more for debt repayment.
Power Pay Option
If you are dealing with multiple credit balances to pay off and feel a bit overwhelmed by it, check out the Power Pay option. Power Pay is a term coined by the University of Utah to describe their proven debt reduction method. This could be your best option for dealing with that holiday debt. It works because you focus on one balance at a time while just paying the minimum to other accounts. As each creditor is repaid, remaining creditors receive larger payments with freed up cash, which results in time and interest savings.
Use A Windfall
One other debt reduction method to mention is using ‘extra’ money to pay debt. An unexpected refund, like a tax return or refund, can give us the boost we need to get those debt accounts under control. Realizing that many people plan to use those refunds for big purchases, I suggest planning to split your tax refund. Once you know the expected amount of the return, allocate half or more to those debt balances. That helps make the rest of the year less stressful and you still get that ‘big item’. The IRS even has a form you can include with your return so they direct deposit the correct amounts into your different accounts (spending and savings). That way the money gets spent they way you intend.
Taking the time to clean up the old year can put you in a better space for conquering the new year. You might consider planning sooner for gift giving to avoid that holiday debt next year. I hope you’ll consider the benefits of starting fresh and keeping the slate clean. It is really a more secure and stable way to handle your money.