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Spent Too Much During the Holidays? 5 Steps to Recover

By Maurie Backman – Jan 1, 2019 at 6:36AM

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Holiday debt doesn't have to haunt you for months on end. Here's how to wipe it out quickly.

Overspending during the holidays is hardly a novel concept. During the 2017 season, the average American racked up $1,054 in debt, and 2018's average could well surpass that benchmark. If you're kicking off the year new with a pile of holiday bills, the sooner you devise a plan to tackle them, the less they'll hurt your finances in the long run. Here are five steps you can take to recover from the holidays so they don't haunt you throughout 2019.

1. Figure out what each of your debts is costing you

Perhaps you charged up a $500 balance on a store credit card, racked up another $400 on your primary credit card, and owe $200 to an additional retailer with whom you financed your purchase directly. Rather than assume it makes sense to pay your smallest individual debt first (in this case, the $200), figure out which debt comes with the highest interest rate, and make that the first one you tackle. For example, if your store credit card charges 20% interest and your remaining debt is costing you 14% and 8%, respectively, work your way down that ladder so that you're paying the least amount of interest at the end of the day.

Woman at laptop holding her head as if stressed


2. Create a budget

In an ideal world, you'd have created a budget well in advance of the holidays and used it to help yourself avoid the debt you ultimately landed in. But if that didn't happen, compensate now by setting up a budget and use it to see where your money is going. This way, you'll get a sense of how much cash you might have available from your earnings to apply to your existing debts, as well as a sense of which current living expenses you have the option to reduce.

3. Cut back on expenses temporarily

You work hard to enjoy life, so the idea of drastically slashing your expenses to pay off holiday debt might seem wholly unappealing. But while depriving yourself of luxuries on a long-term basis might read like a downer, doing so on a temporary basis isn't nearly as bad.

So figure out how much money it'll take to pay off your holiday debt and see if living frugally for a limited spell will enable you to eliminate it. Let's say you owe $1,200 coming off the holidays, and currently spend $400 a month on entertainment and clothing. Cutting out that spending for a three-month period could do the trick in rendering you debt-free in a relatively short amount of time, all the while leaving you with a light at the end of that tunnel.

4. Bank your extra income

A new year can bring ample opportunities to get your hands on extra money, whether it's a raise, a performance bonus, or a tax refund. If you're staring at a pile of debt from the 2018 holidays, resist the urge to spend that additional cash and instead apply it to your debts -- especially if you don't want to cut back on spending in the interim. If, for example, you're expecting a bonus in March that you know will suffice in covering your outstanding balances, you can hold off on slashing expenses and instead apply that windfall to your debt.

Just make sure you'll really be getting enough incoming cash to do so. For example, if you owe $1,000 from the holidays and are expecting a $1,200 bonus, know that you won't get the full $1,200 once taxes are factored in. Similarly, just because you typically get a tax refund doesn't mean you're guaranteed one this year, especially since the 2018 tax overhaul shook up the system a bit.

5. Get a side hustle

If you're not expecting a windfall this year (say, you didn't get a raise at work, there's no bonus to look forward to, and you're not convinced you'll end up with a refund from the IRS), rather than wait for additional income to fall in your lap, go out and earn it. These days, millions of Americans are holding down side hustles, and if you manage to snag a lucrative one, you could be debt-free in no time. Keep in mind that you don't necessarily have to subject yourself to dull or tiring work to earn extra cash. You can instead hone a skill or hobby and turn it into a moneymaking opportunity (think crafting, photography, and writing, to name a few).

Starting off a new year buried in holiday debt is a good way to stress yourself out and thwart whatever financial goals you may have otherwise set for yourself. Follow these steps to dig out of debt, and you'll be better positioned for a successful 2019.

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