10 Tips for Recovering From Holiday Debt

10 Tips for Recovering From Holiday Debt

This article by Pentagon Federal Credit Union (PenFed) was originally published in 2015 and has been reviewed for accuracy.

A new year shouldn't herald a new flight of credit card payments, but if you got a little carried away by the holiday spirit this winter, you might be facing a bevy of new balances arriving in your mailbox. Sure, you can resolve to do better next year - but what can you do now to clean up the debt you've already unwrapped?

1. Don't skip payments. It might seem harmless enough to skip a payment or two in the post-holiday lull, but the truth is that missed payments hurt your bottom line. Not only will you be stung with a hefty late fee for each missed payment, but your credit rating will take a hit as well. Creditors will eventually charge off your debt after repeated missed or below-minimum payments - a major blow to your credit rating.

2. Put a freeze on additional charging. Don't add weight to your low-riding financial boat. Stop charging now. The best method to curb impulse shopping is to take your credit cards out of your wallet and lock them up until your bills are paid off. Avoid other sources of temptation as well. Steel yourself against kicking in a little extra cash to push that gift card you received over the top for an item you really want. Unsubscribe from sales notices from your favorite stores, and delete deals apps and alerts.

3. Turn unwanted gifts into cash. Return unwanted gifts before store time limits run out; the sooner you go, the more likely you are to receive cash back instead of store credit. And did you know you can sell unwanted gift cards for cash? A few reputable sites are easily found online for doing just this.

4. Transfer balances to credit cards with a lower rate. Consolidating your debt at a lower interest rate saves you money and lets you more easily see your progress paying it off. PenFed offers low balance transfer rates on credit cards that will help you pay down the balance on higher-interest cards.

5. Consider a loan.PenFed Personal Loans offer an incredibly low rate. You might also be eligible for a PenFed Personal Line of Credit to help repay your debt or manage your ongoing expenses.

6. Pay more, and pay it now. Always pay more than the minimum payment you owe, and don't wait until next month if you find you can add just a little bit more. The more you pay now, the less you'll pay out in interest and the faster you'll erase your debt.

7. Snowball credit card payments. If you can't consolidate debts on one lower-interest card, “snowball” your payments. Make the biggest payment you can on the bill with the highest balance while keeping up minimum payments on the others. Then once the highest balance is paid off, roll what you would have paid on that bill into your payment on the bill with the next highest balance. The payments get bigger and bigger as you pay off cards. This focus-fire method is more effective than spreading your payments out over several bills.

8. Keep an eye on your progress. Nothing feels better than success, so make a chart or a spreadsheet or whatever it takes to help you keep watch over your progress. Reward yourself for reaching particular milestones (say, every $500 of a $2,500 debt) - as long as that reward doesn't have to go on a credit card!

9. Don't dip into other savings to pay off holiday debt. As important to your well-being as it is to dig out from debt, don't dip into the wrong resources to pay off holiday bills. Never raid your retirement fund or commit to a payday or car title loan; your long-term financial stability is more important.

10. Open a holiday savings account for next year. Nothing beats starting a new year with no debt. Start saving as soon as you're out of debt from this holiday season. Even a strategy as simple as earmarking cash you've slipped into your regular savings account can make all the difference.

Smart saving and money management all year long can help you avoid the holiday crunch altogether. The sooner you take charge of your finances, the sooner you'll be able to splurge on gifts for others during the holidays without sabotaging your finances for the following year.