3 Ways to Recover From a Holiday ‘Debt Hangover’
Written by
Jake Safane
Edited by
T. Woods
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The winter holiday season can be a fun yet expensive period. It’s easy to get caught up in the holiday spirit and go overboard buying gifts for loved ones, decorating your house, stocking up on gingerbread kits, taking ski trips and more. Add it all up, and it’s easy to wind up spending far more than you make or can afford.
In fact, 31% of Americans have gone into debt due to holiday shopping, while 22% have done so because of holiday travel, according to a recent SoFi survey.
Further, options like Buy Now, Pay Later (BNPL) can make it even more tempting to overspend. However, just because you went into debt over the holidays doesn’t mean you can’t get out of it this year. You can also take steps to avoid another debt cycle next holiday season.
Joey Ruffalo, owner of J.R. Financial Coaching, recommended a three-step “ABC” approach to tackling your holiday debt hangover, which includes:
A) Assess
The first step, said Ruffalo, is to take stock of your debt hangover so you know what the best course of action is. In other words, assess your current situation in terms of specifying how much debt you’re in, he explained.
If you’re not focused on specific numbers, the problem can feel too intangible to address. But by assessing your debt amount, you can determine a realistic debt payoff plan.
“Once you wrap your head around it, you can prioritize your debts for payoff. I encourage the snowball method of paying off your smallest debt first, getting you a quick win and the encouragement you need to keep going,” said Ruffalo.
B) Budget
Once you know how much debt you have and what amounts you need to get the snowball rolling, you need to get serious about budgeting.
“The budget is the foundation upon which your financial house is built. It allows you to control your money rather than your money control you,” said Ruffalo.
It may sound obvious, but plenty of people ignore this foundational step.
Suppose you need to pay $100 toward a $1,000 debt each month over the next 10 months to clear your debt by the end of the year (putting potential interest fees aside in this example, such as if you used a 0% BNPL option).
For example, f you don’t carefully budget where you’re going to get that $100 from each month — such as cutting back $50 per month on eating out and $50 per month on subscriptions you don’t need — then you might pay off your holiday debt only to end up in debt on another credit card.
C) Commit
The last step, according to Ruffalo, is to commit to better financial habits so you don’t keep getting debt hangovers.
“Commit to change and commit to planning. Planning for next year can help you avoid this mess again,” he suggested.
You don’t need to do anything overly complex. Sticking with the basics, like budgeting, can help you save enough to afford your holiday spending, rather than having to finance it.
“By using the budget, you can plan with intention. Saving $50 a month for one year is $600. It’s way easier to budget $50 a month every month than trying to find an extra $600 at one time,” Ruffalo added.
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