December can be a minefield for holiday debt or overspending, from the gifts to the parties to the fancy eggnog (just me?).
It’s easy to put your blinders on while the festivities are in full swing, but once the new year hits and your credit card bill shows up in your inbox, there’s no avoiding it: you might have overspent during the holidays.
Luckily, now is the perfect time to figure out a plan to come back from holiday overspending and start the new year off strong.
Figure out your holiday debt numbers
The very first step to tackling any holiday debt or overspending is to take an objective look at where you are now. As tempting as it sounds to avoid the problem, facing the numbers head-on is your best course of action, because it will help you figure out what happened—and what needs to happen to fix it.
If you ended the holiday season with debt, take a look at the exact total of the debt, and what your interest rate is. (If it’s one of many debts, this article isn’t going to get into how to balance them all, but you can check out Living Debt Free, one of my top personal finance books of 2019, to help figure out a plan to tackle them all.)
Knowing the total debt you now need to pay off, as opposed to thinking it’s “around” a certain number, is a crucial first step to making a plan.
The same philosophy applies if you covered your overspending out of a savings account that you had earmarked for something else, like your emergency fund. While you get high fives for avoiding debt, unless you covered your spending with savings dedicated to holiday spending, you need to replace that money to stay on track with your other goals—and you need a plan, which means understanding how much you spent.
Avoid the shame spiral
Once you’ve got a handle on the numbers, it’s important that you tackle the emotional side of your debt too.
While identifying the root cause of the issue can be useful going forward—maybe you didn’t realize how much your grocery bill would increase while hosting family, or you didn’t save enough to cover gifts—there’s no point in feeling badly about yourself because of it.
As Shannon Lee Simmons says in her new book, Living Debt Free,
“Life happens—and sometimes debt does too.”
(Yes, I really, really loved the book, and no, I’m not going to shut up about it.)
There’s too much out there that equates having debt with being bad at money, and that’s simply not true. Life happened, and now you’re handling it by creating a plan and looking for resources to help you with said plan—that sounds like someone who’s great at money to me.
Make a (realistic) plan to pay down your holiday debt
Now that you’ve got a solid understanding of your numbers—and as solid of a grasp on not beating yourself up for them as you can have—it’s time to make a plan. If you have a relatively small amount of holiday-related debt, you might be able to tackle it quickly, especially if it’s the only debt you’re carrying.
However, it’s also possible that your debt total is too big to knock out in a month or two, in which case it’s time to create a realistic plan to eliminate it. And here’s what I mean by realistic.
It’s not realistic to think you’re going to stop spending on everything that makes your life fun and easy (or easier) for the duration of your debt repayment, especially if it’s longer than a month or two. When you’re figuring out how to tackle any debt, whether it’s holiday-related or not, you need to factor in that life happens—and that life includes things like the occasional coffee or takeout order.
So to figure out your plan, it’s time to look at your current monthly spending.
- What are your current fixed costs? That’s stuff like your housing expenses, food, and bills.
- What are your current savings and debt payments? This is everything from topping up your emergency fund to your car loan payments.
- What are your usual variable costs? This is what you expect to spend in a normal month on everything from restaurants to clothing to books.
Map all of that out against your current monthly income. You’re first looking to see if there’s any wiggle room that already exists in your numbers that you can allocate to your debt repayment or savings top-up. If not, it’s time to find ways to carve out extra money to send towards your additional debt payments.
To do that, you could try:
- Reviewing your recurring payments and subscriptions to see if there are any you can cut out or scale down to put the savings towards your debt.
- Making small adjustments to your fun spending over the next few months to find extra money to pay down your debt.
Use tools to help you stay on track
When all of your money sits in the same account, it’s easy to not keep perfect mental tallies of how much you’ve earmarked for rent versus how much counts as your fun spending—and that’s one of the easiest places to trip up when it comes to managing your money on a monthly basis.
It’s honestly also how it’s so easy to overspend during the holiday season in the first place.
Luckily, there’s an easy way to work around it, and it doesn’t rely on memory or willpower at all. Once you’ve figured out how much you need for your financial commitments—your bills, fixed expenses, and responsible stuff like groceries—you can also easily set a fun budget, which is the money you get to spend on whatever the heck you want.
The foolproof trick? Move your fun money somewhere else.
If you move your fun money to a separate debit account, or a prepaid card like KOHO (which I personally use for exactly this) then you know you can safely spend any money there, any way you want.
Pssst: Use code HALFBANKED when you sign up for KOHO to get a $20 cash bonus in your account when you make your first purchase within 30 days of registration.
You won’t be able to overspend as long as you commit to only putting your fun purchases on that card or account, and your debt repayment (and other responsible spending) money won’t get touched. It’s the least-stressful way to stick to a plan I’ve ever found, whether or not you have debt.
Once you’re done, plan for next year’s holiday season
All things considered, it’s likely that this year’s holiday season was less of an anomaly and more of a regular holiday season—they tend to be spendy. So if you realized that you overspent this year, once you’re done addressing that by paying down debt or replenishing your savings, your next best move is to save up specifically to handle the holiday season next year.
Think about it: The hard parts are already done. You’ve already figured out how much you spent that was over and above what you could handle with your monthly salary, so you have a savings goal. You’ve found money in your budget to address this year’s overspending, so once you’re done with that, you can allocate that money towards your short-term savings goal for next year.
And next year, you’ll roll into the holiday season like a total money boss, with money sitting in savings just waiting for you to spend it, guilt-free.