Post Holiday Debt | by Guest Author: Linda Stern, Licensed Insolvency Trustee
The Bills have Arrived! 5 Steps for Paying Off Post Holiday Debt
It’s often referred to as the Holiday Hangover month. January heralds in the New Year with much pomp and levity. Invariably, the cheers turn to chills when the bills arrive. For many people, the first couple of months of the year are depressing and stressful. Post holiday debt becomes very real and this intruder is going nowhere.
While you can ignore the bills for a day or even a week, you are going to have to face them. Our best advice is to do this head on. You need to be committed, prepared and focused to pay off your debts. This 5-step method will help you get the task underway.
Step 1: Be Kind To Yourself
At this stage, beating yourself up about your holiday spending will only make things worse. It may drive you to ignore the bills for longer than you should. And it could even deny you the motivation to start paying them off.
Really, there is no point dwelling on the should-have-would-have-could-have’s. The best thing you can do for yourself now is be kind, accept your humanity and look forward at the task ahead. Nobody is perfect. Perhaps this can become a learning exercise so next year things are different?
Step 2: Create a Post Holiday Debt List
It is time for you to focus on creating a “Post Holiday Debt List”. This list has five columns: The name of the creditor (who you owe money to), the amount you owe, the interest rate, due date and in the final column, the minimum amount they require you to pay.
Without this bird’s eye view, you may be inclined to get by with simply paying the minimum on all bills. This is not a good idea because most will go towards the interest only. You will hardly touch the principal. Compounding credit card interest rates, often in the double digits, will exacerbate the problem and set you back much further.
This is a common trap that can lead to long term indebtedness which is very hard to climb out of.
Step 3: Set Repayment Goals
Many people cannot pay off the entire post holiday debt in one swoop. Accordingly, your next task is to figure out how much you can reasonably set aside each month for this repayment.
To do this, you need to understand your household budget. Everybody incurs necessary expenses each month, such as mortgages, rent, groceries, phone and utility bills. Chalk those up against your monthly income to see what is left over. This represents your discretionary spending. For the next several months, use all or most of this amount to pay down your post holiday debt.
Step 4: Transfer Balances
Your Post Holiday Debt List should identify the “worst offenders”. These are your highest debts on the highest interest rate cards. Make those your first priority.
If you have access to a lower interest line of credit, transfer all the higher interest balances to that account. If you do not, then transfer the balances from the high interest rate cards to the lower interest rate card. You can do this by calling your bank or the credit card company.
An ideal situation would be to get the payments consolidated to one creditor at the lowest interest rate possible. By doing this, you will end up with only one debt to pay down, leaving the debt repayment exercise quite manageable.
Step 5: Snowballing your Debts
If your credit limits prevent you from consolidating your post holiday debts to a single creditor, then snowballing is another good strategy for paying off multiple debts.
Once again, refer to your Post Holiday Debt List. Sort it out from the highest outstanding balance to the lowest. Look at the compounding interest rates to figure out which one will grow the fastest. Put the maximum payment on that debt, while paying the minimum monthly amounts on the others.
Once you have paid off the higher debt, repeat this for the next one down your list until you have cleared them all. Snowballing is very effective but you have to be regimented and committed to the payment routine.
Credit Counselling
The 5-steps described above will help you shave off your debt quickly and effectively. But for some people, the motivation to stick to the plan becomes a problem. And for others, “retail therapy” and self control with post holiday spending adds to the burden.
This is when you should seek the services of a certified credit counsellor. Like a coach, your credit counsellor will stand by you to guide and motivate you. Some clients simply require the knowledge and tools to help them work out a budget and repayment plan. Others may need the counsellor to develop and negotiate a debt consolidation & repayment plan with your creditors. Regardless, Family & Credit Counselling of York Region can help you with this challenge.
And yes, the initial consultation is free!
Linda Stern, a Licensed Insolvency Trustee, is a guest blogger for Family and Credit Counselling Services, a blended not-for profit community-based agency offering debt counselling & management as well as family/individual support services within York region.
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