Shake that debt hangover, fast.

By Lauren Phillips
December 30, 2020
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In the months and weeks leading up to the holiday shopping season, you had the best of intentions. You may have read up on how to save money during the holidays, shopped sales, and reminded yourself that a pandemic holiday season is not a great time for uncontrolled spending. Still, it was a long holiday shopping season that arguably began with Amazon Prime Day in October (Amazon Prime Day is typically held in July, but pandemic conditions forced a shift) and stretched more than two months to Christmas Day. If your best intentions didn’t hold up and you didn’t save as much money as you’d hoped—or you overspent—you’re not alone.

Post-holiday shopping debt (often, credit card debt) is a reality every year as people spend beyond their means to give loved ones the gifts and holiday celebrations they deserve. This year, though, when layoffs, business closures, and overall financial struggles have put a strain on nearly everyone’s finances, that lingering credit card balance or depleted checking account can feel even more stressful.

2020 may have been an unusual year, but there are very usual solutions to your post-holiday debt—or, dare we say, debt hangover. Let’s be honest: 2021 will be challenging enough without lingering debt or money guilt from the holidays hanging over you. We spoke with savings experts to find out the best ways to bounce back from a holiday shopping spree and set yourself up for financial success in 2021. Follow our tips to get that debt or guilt over overspending under control, fast.

1

“The holidays are an overwhelming time, and given it’s been a hard year, you may have gotten carried away with your spending. If that’s the case, don’t spend too much time beating yourself up over it,” says Christina Lucey, director of product and a financial advocate at financial services company Credit Karma. “Just consider it a learning experience, and redirect your time and energy into creating a plan that will help you get your finances back on track moving forward.”

In other words, spending time regretting purchases or agonizing over where you could have saved a little more money won’t help you get anywhere. It has been a tough year, and there’s nothing wrong with indulging the very natural urge to treat yourself a little bit. (According to a survey from shopping services site RetailMeNot, people planned to spend approximately $82 on themselves this holiday season, more than they planned to spend on friends or parents.) The key here is to focus on moving forward, not berating yourself for past decisions you can’t change.

Take time to express some gratitude, too, says Tonya Rapley, a money expert and founder of financial advice site My Fab Finance. “You made it through,” she says. “Give gratitude for what you’ve been able to get done. Don’t forget that.”

2

You’ve acknowledged that you overspent—now stop spending, even for a few days, except for essentials (like groceries). Whatever you must spend, “take a break from utilizing those credit cards,” Rapley says.

“If you find yourself in credit card debt, the first thing you should do is stop using the cards,” says Lauren Anastasio, a certified financial planner at personal finance company SoFi. “Paying off debt while continuing to charge things can make it difficult to visualize any progress towards paying off your balance. Instead, rely on debit cards, cash and checks while trying to get out of your holiday shopping debt.”

Beyond the mental component of managing debt, continuing to add to your credit card balance will increase your credit utilization rate, which could ding your credit score. If you will be carrying a credit balance, that will also affect your score, so you want to do whatever you can to minimize the damage.

3

Once you’ve stopped adding to your balances, take a step back to look at how much you actually spent. Ideally, you’ll keep tabs on your balances as you’re spending, says Mike Kinane, head of consumer deposits, products, and payments at TD Bank. That way, you’ll know where you stand in regards to your budget through the month. If that’s not possible (or you don’t have a budget), take time once all your statements come in to figure out exactly how much you’re going to owe.

“Organize your finances so you know who you owe, [and] how much you owe,” Rapley, who partnered with pay-over-time company Affirm to help shoppers make the most of the holiday season, says. This is especially vital if you spread your shopping across credit cards or used buy now, pay later services, such as Affirm, to manage your spending. The more spread out your shopping is, the more important it is that you combine it all in one spreadsheet or on one piece of paper (or even on one Notes page on your phone) to see the total cost of your holiday shopping. If you took on debt, this will help you keep track of what you owe; if you used savings to pay for your shopping, you’ll know how much you need to pay yourself back for.

Anastasio recommends services such as SoFi Relay to help keep all your accounts in one place. “Being able to see all of your accounts in one place helps you better appreciate exactly what you own and what you owe,” she says.

Don’t just look at the balances, though. You should also do what you can to figure out what fees will come with any debt you accrued. “Know what you’re going to pay upfront, if you can,” Rapley says.

Pick a method that works for you for tracking down and recording all your expenses—just make sure you get it done as quickly as possible. “It’s not the most enjoyable exercise, but it is the most meaningful,” says Rob King, CLTC, a financial advisor with Northwestern Mutual. “Then we have to start about making a budget to get back on track.”

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Once you have a complete picture of your debt situation, make a plan for how you’re going to address it. Obviously, the ideal situation is to use discretionary funds (say, from your travel fund) to pay off any credit cards immediately to avoid carrying a balance or getting charged interest and then pay yourself back over time. The ideal is not reality for many, though: A survey from Discover Personal Loans in July found that a quarter of Americans report having less than $500 in savings.

“Look at how likely you are to be able to pay it off as is with the money you have coming in,” Rapley says. If you don’t have the money you need to eliminate your debt, put together a plan for paying it down over the next few months.

If you overspent, “the best thing to do is pay down debt as quickly as you can,” Kinane says. “If you can’t, move your debt into the lowest interest rate possible.” This could mean flipping balances to a new credit card with a 0 percent transfer balance (if doing so would help consolidate debt, and not mean balances on too many cards) or taking out a personal loan at a lower interest rate than your credit cards offer.

As you begin figuring out the order in which to pay off your debt, start with the card with the smallest balance and move up from there, experts agree. Paying off the card with the highest interest rate may save you more money in the long run, but paying off one card completely can be the motivation you need to keep paying off the others. If you’re concerned about interest accrual, make sure you know the interest rate for each of your cards and adjust your payment plan accordingly. If one card has a slightly higher balance than the smallest one but the highest interest rate, paying that one off first can offer the same motivational boost while still reducing the amount you pay in interest.

Also, don’t be afraid to ask your lenders about leniency, flexibility, or grace periods, Rapley says. Some may give you more time to pay off your debt before they begin charging interest or offer a lower interest rate. If some accounts are inflexible while others have some wiggle room, put those inflexible ones near the top of your list.

Once you have your priority list, work on eliminating that debt over time in a way that balances paying off debt with saving for emergencies.

5

If you don’t have the excess money to pay off your credit cards—tight budgets were nearly universal in 2020—free up money to reduce your debt wherever you can.

One method is to find additional streams of income, Rapley says. If you have a cluttered attic or closet, see if you can sell anything secondhand for a little extra money. Pick up a side hustle or brainstorm ways to profit off your hobbies, like selling your knitted scarves online.

If those aren’t options, look into cheaper forms of debt (aka debt with lower interest rates). Home equity lines of credit, or HELOCs, can allow you to borrow money against your home to pay off your high-interest credit card debt, reducing the amount of interest you’re paying (HELOCs tend to have much lower interest rates than cards) and giving you a little space to repay more of your balances each month, Kinane says.

You can also look into refinancing your mortgage to free up more money, King says. Rates have plummeted in 2020, so you may be able to get a more favorable rate that would lower your monthly house payment and give you more cash to put toward other debt. The same is true for any student loans.

Otherwise, look everywhere you can to lower your expenses and free up money. King says to look closely at anything that comes with a fee, such as food delivery. If you order out often, going to pick it up yourself (instead of having it delivered) could save you a chunk of money every month. Also look into cooking at home more, checking for any unused subscriptions you’re paying for, and using other standard money-saving ideas to put a little extra toward your debt.

The one place you don’t want to turn to for extra money is your emergency fund. 2020 has highlighted the absolute necessity for having some cash savings to help you ride out a layoff, furlough, or medical emergency. Using all or most of your emergency savings to pay off credit card debt can put you in what King calls a worst-case scenario: having some credit card debt and zero cash savings when emergency strikes.

Our experts agree that you want to maintain or build savings and pay down credit card debt at the same time, not pick one over the other. Kinane says it’s a balance: If you can use some of your savings to decrease or eliminate debt while still leaving a comfortable cushion in the bank, do it. If doing so would deplete your savings, look for other ways to pay off your debt.

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We’re circling back to our first tip: Use this as a learning opportunity.

“If this isn’t the first time you’ve spent beyond your budget, this may mean you’re not realistically spending and saving your money,” Lucey says. Many people seem to realize this—a recent survey from SoFi found that 26 percent of people say one of their top financial goals for 2021 is to get their spending under control.

If you don’t have one already, put together some sort of financial plan that outlines your goals (home buying, retirement, whatever) and notes what steps (saving a certain amount each year or eliminating debt, for example) you need to take to get there. Planning is key, experts agree, and keeping an eye on your larger goals can help guide you through smaller challenges or goals, including overspending during the holidays. You want to get to a point where every financial decision you make is within the context of your larger goals, King says.

A budget is important here. Learning how to budget now can help keep you on track in the future, and if you do overspend, having a budget makes it easier to figure out why and how you can avoid doing it again in the future. (It makes figuring out how much you overspent easier, too.)

Once you have a plan, set some new rules for spending, Rapley says. “A lot of people don’t have rules when it comes to spending,” she says. Create your own by outlining the circumstances under which you can buy something nonessential, such as waiting until you have the money to pay it off immediately, going on 30-day shopping freezes on a certain item (such as clothing), or refusing to buy anything full-price. Rapley suggests asking yourself, “Do I need this? Can I afford the maintenance? What will happen if I don’t buy this item today?” to avoid pricy impulse purchases.

While you’re planning, start preparing for next year’s holiday season now. (It will be here before you know it.) Create a holiday account where you can stash a few extra dollars each month, Rapley says.

Start shopping earlier, too. “If you went over budget this year, jump on it earlier next year,” King says. Make a list early and watch for sales on great gifts all year long. Take advantage of free shipping offers and seasonal sales, such as Black Friday and Cyber Monday, to buy gifts from your list. Starting early can help you save money on last-minute purchases, express shipping, and other expenses that add to the overall cost of holiday gifting. It also spreads out the cost over a few months, instead of a few weeks.

Look back at the true expense of this year’s shopping, too. If interest rates and fees pushed your spending over the edge, think about ways you can avoid hidden costs for next year’s shopping. Rapley says to pay attention to the fees that come with every payment method and recommends services like Affirm that break large purchases into manageable payments without surprise costs or fees; other options include paying only with cash or debit cards. However you choose to shop, knowing what additional costs come with each purchase will help you minimize the damage next year.