It’s easy to get off track financially during the holidays. Giving presents makes us feel good, and it’s hard to say no to spending a bit extra on your friends and family. But remember that you’re not alone in your extra spending: During the 2022 holiday season, the average American piled up $1,549 debt on average, according to a LendingTree holiday debt survey.
Now that it’s time to pay down your bills and realign your budget, how do you do it? Use these strategies to get back on track and avoid a repeat performance during next year’s holiday season.
Assess Your Situation and Make a Plan
First, review your entire financial situation, including your monthly budget and outstanding balances, and see what the next few months look like. Make to plan to get your finances in order.. Take into account your monthly income and both your fixed monthly costs (rent or mortgage, utility bills, car payments, etc.) and discretionary spending––monthly expenses that can be trimmed as needed, such as trips to the movies or dining out. What is a realistic time frame for paying down your debt?
Tighten Your Belt
Look through your regular (non-holiday-related) expenses over the past couple of months. Place everything in either “mandatory” or “discretionary” expense categories. Decide which non-essentials you could give up for a few months or longer. For example, how about avoiding restaurant meals? Instead, focus on brown bag lunches and home-made coffee. That might cut $100 per week. Could you carpool to work? Saving on gas and parking can add up quickly. Comparison shop. Replace paid concerts and events with free—or at least cheaper—ones. When you look at everything with a critical eye, anything is possible.
Many Happy Returns
Consider returning gifts you received that you don’t really need. Use the proceeds via a refund or store credit on upcoming necessary purchases.
Use Gift Cards
Use any gift cards now, when you’ll truly appreciate the savings.
Apply Any Lump Sums Received
If you receive a holiday bonus at work or a tax refund, use the money to pay down any debts. By paying them off, you’ll give yourself financial and psychological relief.
Consider a Side Hustle
Part-time gigs are easy to find these days. Working a few extra hours per week for a service like TaskRabbit or ride-hailing companies, such as Uber or Lyft, could supplement your regular earnings. And while you’re working, you’re not adding to your spending!
Build an Emergency Fund
A great way to avoid getting into too much debt is to build an emergency fund. Start putting money every month into a designated bank account where you can eventually save enough money to be able to pay for living expenses for six months or longer.
Plan Ahead for the 2024 Holidays
Start shopping early for the 2024 holidays or just set aside money throughout the year so that by the time November or December rolls around, you’ll be spending money you’ve already saved.
Earn More Interest on Savings
Looking ahead, consider higher yield savings accounts, including some longer-term certificates of deposit (CDs) that pay higher interest rates. You could build a CD ladder, with some CDs maturing every year. For example, by buying a 1-year, 2-year and 3-year CD, when each one matures, you could roll the balance forward at a higher rate in a new 3-year CD, knowing that you’ll always have some money maturing, available to use if needed.
Start today and next year’s holidays could be even cheerier.
Allan Kunigis is a financial freelance writer based in Shelburne, VT. He has written about personal finance for more than two decades.
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