In the flurry of the holiday spending season, it’s easy to forget you have a budget. But once the hustle and bustle is over, real life always catches up.
Once the bills start to pile high in the new year, many people think they need to get a line of credit online to keep debt collectors away. But this may not be the best way to handle your holiday debt.
Let’s take a look at how you can recover from overspending during the holidays. Below are some dos and don’ts of paying off holiday debt.
Don’t Take out a Line of Credit
If your mailbox is full of bills — each one with a looming deadline you have no hopes of paying — you may think a line of credit is an easy solution to your problem.
In reality, it solves nothing. It only delays and potentially compounds your cash conundrum!
Generally, it’s never a good idea to get a personal line of credit to pay off another loan or line of credit. These financial products are better kept in reserve for an unexpected emergency expense.
Get in Contact with Your Debtor
If you think you won’t be able to make a payment without the help of a loan or line of credit, contact your financial institution or provider. Although this will make for an uncomfortable conversation, it’s best to get it off your chest.
You won’t be the first customer who can’t make their payment. In all likelihood, your financial institution or provider will already have a financing plan available.
Find out if it’s possible to reorganize your payment schedule. You may be able to break your payments into smaller installments or push out due dates until you have the cash.
Find the Right Payment Technique
When it comes to paying off debt, there are two popular techniques. Both require you to make the minimum payments across every bill, but they focus your extra cash in different ways.
- The Snowball Method: After ranking your bills from smallest to largest, you’ll put most of your money towards the smallest balance. Once you strike this bill from the record, you’ll roll the cash you used on this old debt into the next smallest bill.
- The Avalanche Method: This payment style requires you to rank your bills from highest to lowest interest rate. You’ll focus on the bill with the highest interest rate first. Once you pay it off, you’ll put your money towards the next highest interest rate.
These techniques have one major thing in common: they’re both about gaining momentum. As you move from one bill to the next, you’ll have more cash to put towards the next bill in your ranking. This means your debt-killing powers grow with each bill you knock out.
But they have some differences. By focusing on the smallest debt first you may expect to see faster results with the snowball method. Although the avalanche method may be slower, it tends to save you more money in interest.
Just Don’t Ignore Other Responsibilities
With a laser focus on your holiday debt, your other bills may take a back seat in the new year. But part of being a money management pro is learning how to multi-task all of your responsibilities.
If you plan on striking out holiday debt, make sure it’s one of many priorities in the new year. Good luck!