If you’re waking up with a holiday spending hangover today, you’re not alone. Holiday shopping puts a big strain on finances.
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“We have Black Friday, then dark January,” said Rod Griffin, director of public education at Experian. Consumers tend to find themselves trying to dig themselves out of debt and get back on track financially in the new year. This is typically because they spend more than they expect to during the holidays and use credit to fund their shopping.
If you exceeded your holiday shopping budget, racked up debt and depleted your savings, you can bounce back. Here are 10 steps you can take to get your finances back in shape in the new year.
1. Review Your Holiday Spending
The first step you should take after the holidays is to review all of your spending, said Bruce McClary, spokesperson for the National Foundation for Credit Counseling. Look at how much you charged to credit cards, how much you spent from savings and the categories you were spending on — such as gifts, food and entertainment. “It gives you a good starting point to get out of debt and rebuild savings,” McClary said.
2. Make a Plan to Tackle Debt
Plenty of consumers will be digging out of debt in the new year. To quickly eliminate that debt, you need a plan.
“The worst thing you can ever do is plan to pay the minimum payments,” said McClary. “That debt may be around for the next holiday season, and may be in the way of planned purchases and activities.”
Ideally, you should aim to pay off your credit card balance in one to two months, he said. If you owe money on more than one credit card, he recommended using one of these two strategies: tackling the smallest balance first or paying off the card with the highest interest rate. “The process that is most motivating is the one that you should go with,” said McClary.
You might need to tighten your belt to wipe out your debt quickly. “Look at everyday spending to find ways to cut back to contribute more to debt repayment,” sai/;’d Bethy Hardeman, former chief consumer advocate at Credit Karma. You can also put yourself on a cash-only diet so you don’t rack up more debt as you’re trying to pay it off.
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3. Put Extra Cash Toward It
In addition to cutting back, look for ways to generate more cash in the new year to pay off your debt, or to rebuild savings you might have tapped to cover holiday spending. The first place to look for extra money is in your paycheck. Consider your annual bonus, for instance. Th0ugh it may feel like that money should best be spent on a well-deserved reward for all your hard work, consider being debt-free and less stressed a reward in itself.
If you loaded up on gifts this holiday season, you can make room for your new things by selling some older items online, said Farnoosh Torabi, a leading personal finance expert and bestselling author. “This will not only help declutter your space, [but] you can earn some extra cash to help pay down that December credit card balance.”
You can sell clothing and accessories at sites such as Thredup.com and Tradesy.com, which get a commission for reselling your items. Or you could try listing items for sale on Craigslist.
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4. Set up Automated Payments
Paying your credit card bill late (or missing a payment) can be costly. Not only will you get hit with fees if you pay your credit card bills late, but your credit score will take a hit too, according to the NFCC.
Torabi said you can avoid making late payments by setting up automated payments through your bank or card issuer. Apps such as Mint Bills can also send you reminders when bills are due.
If you plan to skip a payment because you can’t afford to pay your bill, McClary said you should call your credit card company first to see what remedies you can find together while your account is in good standing. “If you have good credit, there are plenty of options to give yourself some breathing room so your credit score doesn’t take a hit,” he said.
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5. Transfer Balances
Here’s an easy money tip to follow: If you have good credit, lower the cost of your holiday debt by transferring balances to a low-rate card. You often can get a 0 percent rate on balance transfers for 12 to 18 months, which can reduce the amount of interest you’ll pay on your debt.