How to Pay Off Holiday Debt and Start the New Year on the Right Financial Foot |
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How to Pay Off Holiday Debt and Start the New Year on the Right Financial Foot

If you’re like many Americans, you’re familiar with the “holiday hangover.”

But in this case, it’s not too much eggnog or mulled wine that’s to blame. This particular hangover comes from holiday season overspending—gift shopping, holiday travel and tall grocery bills many people put on their credit cards each year. Once those bills come due, lots of us are left feeling a bit queasy.

MassMutual surveyed 1,000 American adults about their holiday spending and found that more than half did not save up any money to pay for holiday expenses. Of those who planned to use credit cards to cover these costs, nearly 60% knew that they wouldn't be able to pay off the debt for the following six months or more.

Of course, the best way to handle holiday debt is to avoid it altogether. But life happens, and if you were one of the significant number of Americans who charged holiday expenses to your credit cards, here’s how you can manage that debt to start the new year off right.

How to manage holiday debt, according to an expert

“The first stage of any debt payoff journey, whether it's paying off a few hundred dollars after a holiday splurge or tens of thousands of credit card debt, is having accurate information,” says R.J. Weiss, a Certified Financial Planner and founder of the personal finance site The Ways to Wealth.

He recommends taking stock of everything you own (your assets) and everything you owe (your liabilities). If you subtract your liabilities from your assets, you’ll get your net worth.

Then, take your after-tax monthly income. Now subtract your monthly spending. That will include everything from your rent or mortgage payment to what you spend on groceries, clothes, and entertainment.

“Specifically, [you want to understand] what the gap is between your income and expenses, as that's the amount you can use to pay off your debts,” Weiss says.

Armed with these numbers, you can make a plan to pay off your debt.

“How much can you realistically pay each month to chip away at your debt based on your income and expenses?” he says. “How long will it take you to pay off your debt at this rate, and are you comfortable with that timeline?”

A credit-card debt payoff calculator, like this one from Experian, can help you visualize different payoff scenarios.

For example, say you end up with $1,800 of credit card debt after the holidays, and the APR on your credit card is the national average of 14.54%.

If you make only the minimum payment of $30 on the card, it will take you about five and half years to pay off the debt. If you put $150 toward the debt each month, it will take just over a year to pay off the debt. If you bump the payment to $300, it will take about seven months to pay down your debt.

At this stage, you want to be brutally honest with yourself about whether this debt is an anomaly in your spending patterns or if you have a habit of spending more than you earn that could end up snowballing.

“If big changes are needed, the time to know is right now,” Weiss says. “Then again, maybe big changes aren't needed, and an unexpected increase in holiday spending will be corrected by the end of January.”

Other tools that can help you pay down holiday debt

Examining your monthly spending to see where you can trim your expenses is a straightforward way to pay down your credit card debt. But there are other tools at your disposal for paying off holiday debt that could help you save on interest at the same time, too.

“Zero-interest credit cards or a low-interest personal loan can be a good financial decision,” Weiss said. “Paying less in interest over the course of paying off your debt will help you save money and become debt free faster.”

To make a zero-interest credit card a good choice for paying off debt, you’d start by transferring your credit card balance to a new card with 0% APR. The 0% interest offer, however, is temporary—it typically lasts a year or two at most. If you’re going to go this route, you should be sure that you’ll be able to pay off the balance before the introductory period is over. Once it ends, you’ll be paying a much higher APR.

The personal loan route involves paying off your credit card with the money from a personal loan that has a lower interest rate than your credit card. Then you’d pay back the personal loan over time. The interest rate and other terms you’re eligible for will depend on your credit score, income and other factors.

Weiss noted that while these tools can be helpful for paying off debt, they aren’t a fix for any underlying issues that caused you to go into debt in the first place. “If those issues aren't addressed, you could end up in more debt down the road,” he says.

“In other words, taking out a balance transfer card or a personal loan is really just one of the many things you can do to pay off debt,” he says. “While they can help quicken the process, it's important to have a solid plan as it relates to spending less than you earn, so you're not just transferring your debt from one place to another.”

Thomas Donaldson is's credit card expert. His work has been featured by USA Today, NBC News, Business Insider and many more.