Are you feeling the effects of your holiday spending? You’re not alone. In fact, a new study shows that 37% of consumers will spend two or more months paying off debt from the holiday season. With added expenses to account for now, this brings developing a plan to pay off holiday debts and staying current on your other bills to the forefront. Despite the buzz around pulling cash from your 401(k) to cover bills and other expenses, this is not a recommended repayment strategy. You’ll be responsible for paying fees from penalties and taxes on the money withdrawn, as well as having to work longer to recoup the loss from the withdrawn funds.
Fortunately, there are other steps you can take to tackle holiday debt while staying current on your other bills.
1. Evaluate your current expenses
To help you understand where your money is going, consider evaluating your current expenses. Look at your bank and credit card statements from prior months to determine if there are things that you no longer need or benefit from, like streaming services and merchant subscriptions. It’s also ideal to look at spending that you don’t consider necessary. Can that be paused until your finances are back on track?
2. Establish a debt payoff plan
Once you understand where your money is going, consider establishing a debt payoff plan. Are there funds that were previously tied up that can now be used toward paying off the holiday debt? If not, there are some debt payoff options available, like the snowball and avalanche method. The snowball method is essentially paying off your smallest debt first. Once that debt is paid off, you’ll take the funds that you were using to pay off that smallest debt and put them toward the next smallest debt. The goal is to follow this method until all debts have been paid off.
The avalanche method consists of making the minimum payment on each debt and putting any remaining funds toward the debt with the highest interest rate. Like the snowball method, once the highest interest rate debt is paid off, you’ll take the extra funds from paying off that debt and put them toward the next highest interest rate debt until all debts are paid off.
3. Adjust your budget
Your monthly budget is likely set, so you’ll want to make sure you are revising it to add in the debts from your pre-holiday spending you’ll be paying off. You’ll also want to consider if there are any areas in your budget that you can take some extra cash from to help pay off debt, like entertainment or dining out funds. Your adjusted budget will allow you to see a holistic view of all your financial responsibilities to help you stay on track of your current bills, while making progress on paying off holiday debt.
Use our budget calculators to help you better understand your cash flow and your expenses.
4. Buy generic instead of name brand
A simple, yet effective way to help you free up money is to use generic brands instead of name brands at the grocery store. According to a recent analysis, buying a generic brand will save you roughly 40% more on your groceries each trip. Generic brands will cost less than a name brand, however, the quality of the product is equivalent to that of a name brand. You’ll also want to consider shopping around as prices for generic brands can vary from store to store.
5. Automate savings
Once your holiday debts are paid off, consider saving toward your short-term and long-term saving goals. The new year is a great opportunity to revisit your savings strategy and establish a plan for the year ahead. Plus, you can use Plinqit, First Bank’s savings app, to get a head start on saving for your next holiday season’s expenses. After securely linking the app to your First Bank accounts, you’ll be able to set as many savings goals as you’d like. Saving for expenses has never been easier!
Additionally, if you have an existing First Bank Home Equity Line of Credit, you can use those funds to consolidate debt.
As you begin paying down holiday-related debt, a good starting point is to evaluate your current expenses and establish a payoff plan. You might have expenses that you can part ways with or re-work your budget to free up funds in other areas.
For more information on how First Bank can help you achieve your financial goals, contact a trusted First Bank representative.