Tackling Holiday Credit Card Debt

Women wearing red sweater sitting on the sofa and using laptop and credit card to shopping online at home

Not-So-Merry Credit Card Balances

Holiday-induced credit card debt is a growing problem in America. According to NerdWallet’s 2017 Consumer Holiday Shopping Report, more Americans find themselves in debt because of holiday purchases. If tackling credit card debt — especially with bloated balances due to holiday spending sprees — there’s hope. As a Daily Money Manager, I work with many clients in reducing debt and creating a more stable financial life. Ready to get started?

You’re Not Alone

First, don’t beat yourself up. You’re not alone. Those Americans surveyed by NerdWallet said they would spend between $500 and $800 during the 2017 season. Magnify Money reported that actual holiday debt was closer to $1,054.

Sadly, many of those same consumers who created more debt were still paying on balanced incurred during the previous year’s holiday season. So, now they’re struggling with two years of holiday shopping sprees.

So, what’s the problem?

Lack of planning. 7 out of 10 holiday shoppers said they planned in advance. Given the growing debt Americans carry month over month, I suspect that even “planners” got caught up in the Black Friday/Cyber Monday frenzy. Or, they reported themselves as planners when in fact they really weren’t. With online shopping made easy with Amazon Prime and free delivery on orders of $50 or more, consumers may not realize how much they actually spend over time.

How To Tackle Unsecured Debt

In the MagnifyMoney study, about half of shoppers anticipate paying off the debt within three months. 10% of shoppers say “they would only be able to make minimum payments on credit cards.”

If you have credit card debt and want to get rid of it, I really like Motley Fool’s 5-step plan. It’s simple to follow and effective. However, I’ve added two steps (#4 & #7) because I think there are missing puzzle pieces that affect debt reduction and staying out of debt.

  1. Add it Up. You can’t fix what you don’t see. Organize all your credit card statements so you can assess the hill you’ll climb. Specifically, you need to determine: the outstanding balance, interest rate, and minimum payments on each card. Now, write it down. Go ahead, pull out a piece of paper and pen. I’ll wait. 😉
  2. Prioritize. There are two basic methods to how to prioritize paying off debt. Highest interest rate first: it gets rid of debt that costs you the most. Smallest balance first: it shows progress and therefore keeps you motivated. I’ve seen both methodologies work, so choose the one that best fits your needs and personality. Sort your credit card debt either by interest rate or by balance.
  3. Calculate the Total Minimum Payments. Using the paper where you listed all your credit cards (interest rate, outstanding balance, etc), add up the minimum payments owed each month. Write down the monthly total.
  4. Review Your Spending Plan. The key to success, in my experience as a Daily Money Manager, is an awareness of what you’re spending each month compared to what comes in. That’s Budgeting 101. What could you cut out of your monthly expenses? Now you have a dollar figure to apply for the next step.
  5. Set Your Goal. Using the dollar amount from step 4, you can add that extra payment to one credit card minimum payment (either highest interest rate or lowest balance). Once that card is paid off, apply the total payment to the next card on your list. Pay that one off and move to the next until all cards are paid off.
  6. Create a 2018 Holiday Plan. While you have all your credit card statements handy, think about what you can afford to spend during 2018’s holiday season. If you need to spend less, strategize on ways to spend less or differently (e.g., homemade gifts or spending time together).
  7. Apply This Habit to Saving. Once you’ve paid down the debt and figured out how you’ll spend for next season, apply the same amount you’ve paid toward credit card debt to a savings account.

Need Help Crunching The Numbers?

Do you want an objective point of view or help in crunching your financial numbers? Contact me for a complimentary 30-minute consultation.

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