This is a guest post by a friend of mine named Tim, a personal finance blogger who writes about achieving financial freedom.
By now, you may be feeling the pain from the holiday season. He’s going to share with you a few great tips about how to start reducing your debt, and how to prevent it in the future
Several years ago, before getting my finances under control, I seriously overspent on Christmas gifts to family members. It had been my habit in previous years to skimp on gifts, since I couldn’t really afford to buy any—I was that terrible relative who made you a handwritten card or a macaroni drawing even into my 20s, the one you never wanted to have drawn your name in the gift exchange.
Having tired of this reputation, I went a little overboard and bought a bunch of nice things, especially for my niece and nephew. I had just gotten my first real job and a newly minted credit card, and felt I was finally in a situation where I could splurge on Christmas presents regardless of my empty bank account.
Looking back now, I realize that I did myself a serious disfavor by being generous that year. It took over a year to completely dig my way out of the holiday debt.
During that time, I developed my first budget and made a plan to keep this mistake from happening again in the future. I thought I’d share my steps for paying off my Christmas debt, in case there is anyone else in this situation.
Itemize What You Owe
Unless you have elves in the backyard crafting goodies for your gifts, you probably have blown your Christmas budget in the heat of the holiday shopping rush. I can’t fault you for that. It is, after all, the season of giving. I will, however, fault you for not keeping track of all that you owe.
Soon after all the presents have been opened and your normal life resumes, make sure to spend some time making an inventory of where your holiday budget went. Keep track of everything that you bought by itemizing your receipts so that when your credit bill comes in you know exactly what to expect.
Map Out a New Year Payment Plan
If you really want to clear off all of your hangover holiday debts, you need to be vigilant with where your money goes. Begin by assessing how much money you have saved up, if any. Then factor in how much of your monthly earnings can go towards paying off your credit card balances. Now, you can go ahead and set up a budget plan for the next 3 months and make sure to stick with it.
Stop Taking Out More Debt
As you are deep in debt at the moment, the last thing you need is to pile up even more financial liabilities. It is best during this time to forgo a few unnecessary luxuries such as eating out or splurging on clothes. Focus instead on money saving schemes that include using coupons, reducing your power consumption to reduce your electric bill, or using public transportation to save on fuel expenses. The first step towards getting out of a hole is to stop digging.
Check Your Income Tax Return
If, after evaluating your funds, you’re still unable to pay off all your Christmas debt then it is time to file your income taxes in the hope that you receive a tax refund. Opt to file electronically and early rather than through the mail or at the last minute so you can get your refund earlier and reduce the money you are throwing away in interest payments.
Work on a Plan Next Year
To make sure that you won’t have to go through the same agonizing experience again, map out a plan and prepare your holiday budget early. Start by reviewing how and where you spent your holiday money and from here assess the funds you should allocate for next year. Now that you more or less have a figure in mind, you can easily compute how much you have to save each month to make sure that you stay on track with your targeted holiday budget.
It’s fantastic to be generous and kind spirited, but don’t let your generosity damage your credit reputation or personal finances. Make a plan to pay off what you owe and save throughout the year, so you won’t run into the same problem next Christmas. You don’t have to be a stingy uncle and avoid buying gifts for your loved ones. Become a smart shopper and stop stressing over holiday bills.
After a rough start to financial freedom, Tim now helps others make smart auto financing decisions at https://www.onlineloancalculator.org/. Visit here to learn how buying versus leasing can affect your overall debt.