6 Ways to Eliminate Holiday Debt

Have you glanced at your banking and credit card account balance in the new year, surprised by how much you actually spent on the holidays? You’re not alone. The average holiday debt from 2024 was $1,181. That’s enough to make a big dent in a lot of pockets. Don’t fret – instead, make a plan to implement smart money moves to eliminate that holiday debt and nix the holiday spending hangover next year.

Take Inventory

The new year is a wonderful time to sit down and assess your debt. Be honest about what you accumulated, what you already owed before the holidays, and work that debt into a monthly amount you can dedicate to paying off and eliminate holiday debt.

Purge

With all the new goodies from the holidays, it’s the perfect time to go through toys, household items, and décor and try to get some cash for it. Facebook Marketplace, Offer Up, and Next Door are just a few places that you can post the items you no longer need for sale. Not only does this give you cash back to put toward your debt, but it frees up space and offers instant gratification to celebrate and accomplishment.

Plan a Budget

If you already have a budget, it’s time to revise. If you don’t have one, it’s time to start. Begin by listing your monthly household income, next list your monthly household expenses. After that, list all your debt payments. Now, subtract your expenses and debt payments from your income to give you your monthly discretionary income (the money you have left after everything is paid). Don’t forget that you should have a line item in your debt for savings, as that is a payment you owe yourself each month.

Make Temporary Cuts

If you find your discretionary income to be low or negative, or you just want to pay debt faster or save more, it’s time to make temporary cuts in your budget. Subscriptions, eating out, non-essential beauty expenses, and entertainment are all good places to start. By cutting the wants to focus on the needs, you are making a sacrifice for your future financial self. Who knows, after cutting these items, you may realize you can do without them long-term and benefit yourself even more.

Build an Emergency Fund

An emergency fund is essential to every household. It keeps you afloat in times of financial hardship without having to take on additional debt. That savings line item you added as a debt in your budget should be for your emergency fund first, then for additional savings for trips, big expenses, and extra activities and items.

Automate Savings

To enhance your savings and ensure you’re building the emergency fund and savings, make sure to automate those transfers. As they say, out of sight, out of mind. By having your savings put away automatically, it makes it more likely that you’ll grow your finds without excuse. Having these funds put into an account with withdrawal restrictions like a savings, money market, or holiday savings account, it will also make it less likely for you to pull the funds out, while maximizing the savings with interest.

By implementing these steps, you can put yourself on the path to eliminate holiday debt and achieve financial recovery and stability in the new year. Start by assessing your current debt and creating a solid plan to pay it off, while adjusting your budget and cutting unnecessary spending. Don’t forget to prioritize building an emergency fund so that you’re better prepared for future surprises. With automated savings and a fresh mindset, you’ll be able to turn the page on post-holiday debt and work towards a stronger, brighter financial future. Keep your eyes on the prize, and remember that small, consistent actions today can lead to big rewards tomorrow.