Do you dread looking into your mailbox this time of year? Do you have to take a deep breath before opening your credit card statement? Do you lay awake at night wondering how you are going to pay for all the fun you had over the holidays? You might have a debt hangover.
While not a technical financial term, the Debt Hangover, refers to the feelings of stress, restlessness, worry, and in some cases anxiety over how to manage the next few months bills.
With the average Canadian household spending $1,500 on the holiday season, it is no wonder so many people are waking up feeling the same way. However, the good news is there is a cure for the debt hangover. Following these steps can help put the hangover behind you and prevent another one next year.
Firstly, you need to take stock of what you spent over the holidays. This includes everything from gifts to travel to food and shipping. While it may be hard, you need to look at your credit card statements and categorize your spending. How much did you spend on gifts versus entertainment or travel? Once you have a few broad categories and their totals you are on the way to being hangover free.
Next, you need to come up with a plan to pay these debts back. While it is ideal to pay it all off at once, you need to ask yourself, “where will this money come from?” Like many, you may not have the ability to work overtime, so the money used for debt repayment will likely come out of your regular monthly budget putting a strain on your spending next month.
If this is the case, take a 3-month view to paying off your debts. This will help to reduce the total interest cost on your debts and get you feeling better more quickly. Simply divide your bill by three and use this number to aggressively tackle your debts. Debt repayment will have to become a spending priority over the next few months if you want to end this debt hangover.
To work in your debt repayment you may have to put your cards on ice. You can’t get out of debt by adding more. So, put the cards away for a while, go on a credit detox and focus on cash. By putting your cards away, and out of your wallet or purse, you won’t be tempted to use them.
Taking this approach will help make your debt hangover a thing of the past, however, if you want to avoid another one next year there is one simple step you can take.
Take another look at the total cost of the holidays, both on credit and cash/debit. Be sure to include everything from the meal to the ribbons and wrapping paper. Use this number as your yearly savings goal. Divide that number by 11 months so come next December you will have enough cash saved up to pay off the holidays in one shot. To pay for the average $1,500 holiday season you will need to put aside $137.00 each month starting January. Hold off until July and you will have to save $300.00 monthly to have the same amount on December 1.
By making your debt repayment and next year’s holiday expenses a priority in 2018 you can be sure that you will get over your debt hangover quickly and as cheaply as possible, but also rest assured that you will prevent another one next year.