Unwrap your holiday debt recovery checklist

Holiday festivities can leave wallets as empty as gift boxes the morning after you know who returns to the North Pole. While thoughtful presents bring joy, seasonal overspending can dampen even the most cheerful spirits. A post-holiday reality of dwindling savings accounts and high debt balances could impede plans to buy a new car or save for a home in the new year. But there’s no need to despair; we’ve put together a holiday debt recovery checklist with your name on it.  

The big picture

You made it through another holiday season. According to preliminary results from Mastercard SpendingPulse™, holiday retail sales increased over 3% from the previous year.  

Bottom line: you weren’t the only one splurging in the year’s final months. 

Realistic debt repayment plans

While viewing statement balances can fill you with financial regret, beating yourself up over a seasonal spending spree won’t improve the situation. But following a debt repayment plan might. A well-structured budget that reflects the reality of your situation is likely to cause less stress and lead to success.

• Start by establishing your financial baseline. Figure out your monthly income and essential expenses. Subtract expenses from income to determine how much you have available for debt repayment.
• Next, update your budget to include a category and amount for extra debt payments.
• Then total your individual debt balances and order them by interest rate or statement balance.

For example, Jenny’s financial baseline is $800. She has $3,000 in holiday debt with varying interest rates. She plans to direct an extra $500 each month toward the credit card balance with the highest rate. To avoid spending the money on nonessential items, Jenny creates a new budget category called “debt recovery” and assigns $500 to it.

Smart budgeting strategies

If the amount left over after subtracting expenses from income is less than what’s needed to pay off debt within a reasonable timeframe, increase your earnings while cutting back on unnecessary expenses. This should free up more cash to help lower balances quickly.

Holiday debt elimination is also easier if you:

• Call long-time creditors and ask for a lower interest rate on borrowed funds. If they agree, it could result in a smaller repayment amount since reduced rates mean fewer interest charges.
• Explore ways to reduce essential spending, like shopping for cheaper auto insurance.
• Set up automated payments via Online Banking to ensure extra payments are sent to creditors before the money is spent on nonessentials.

If you spend money on an optional expense, adjust spending in another area of your budget to stay on track. For example, Paul spends $75 on tickets to a sporting event. He pauses his on-demand streaming service for two months (an equal amount) to balance his budget.

Nurturing emotional well-being

While following a plan to eliminate holiday debt is necessary, hyper-focusing on debt repayment without attending to emotional health may significantly increase anxiety levels. Overwhelming financial obligations might lead to chronic stress and negatively affect relationships, work productivity and physical health.

Maintain a balanced approach to paying off debts and managing your emotional well-being. Besides creating a realistic debt repayment plan, setting time aside for fun activities that promote relaxation is strongly recommended. Engaging in fun, low-cost hobbies, leisurely outdoor walks and regular social interactions could bolster emotional resilience. Such activities are essential for fostering a positive mindset as you make progress toward your financial goals.

Holiday debt recovery checklist

Unwrap the best gift you could give yourself in the new year – financial peace of mind. Use this holiday recovery checklist to help take charge of your finances and eliminate debt. 

• Review credit account balances. Examine your holiday expenses to understand where your money went.
• Prioritize debt payments. Put debts in order by interest rate or amount owed. Paying off high-interest debt first typically saves the most money. However, paying off the smallest balance first could motivate you to stick with the plan.
• Create a realistic debt reduction budget. Establish a budget for your regular income, necessary expenses and minimum required debt payments. Confirm how much money you have available for faster debt repayment.
• Identify unnecessary expenses. Reduce nonessential spending to free up more money for debt repayment.
• Increase household income. Earn extra money by working overtime or getting a second job or side gig. Earmark the surplus cash for debt repayment.
• Commit to a debt repayment strategy. As each debt is paid off, shift the payment to the next creditor on your list. Adding this amount to the minimum required payment helps to pay off the balance faster.
• Set realistic repayment timelines. Debt elimination timelines should align with your available resources.
• Plan weekly self-care activities. Make a list of low or no-cost ways you can relax. Refer to it as you schedule your days.

Remember to avoid using credit cards or taking out new loans as you work your debt reduction plan.

Cleaning up unwelcome remnants of the holiday season takes consistent effort and time. While you can eliminate holiday debt on your own, help is available. Nonprofit credit counseling organizations work with individuals to create customized debt management plans. Some organizations require that you consolidate debt, close credit accounts and refrain from opening new accounts. Be sure to read the terms and conditions and ask any questions before entering into such an agreement.