January can sometimes be a very gloomy month. Aside from frigid temperatures and unpredictable weather, another reason this month might not be going so great for you is because of all the spending you did last month.
Overspending during the holidays can really make it difficult on the budget, especially as you try to forge ahead into the new year. The holidays are stressful enough financially and it can be even more challenging if they didn’t go as planned. While you can’t change anything now, you can create a plan to help you bounce back and recover from a blown holiday budget.
Understand How Much You Spent
First, you need to understand how much damage was done. Look at your holiday spending in totality: how much did you spend and on what? How much of it did you pay in full already? How much did you charge on credit cards? Can you pay off your upcoming credit card bill in full? You want to know exactly how much was spent and in what categories. This will help you devise a plan to tackle whatever debt is left over and also help you plan for next year.
Revise Your Budget
Next, you’ll need to create a solid plan to pay off debts and that starts with revising your budget. I know the government is intending for the stimulus checks to be used to stimulate the economy but use the money to lower your debt instead. You’ll also need to cut back on any non-essentials and put cash towards debt if the cash infusion didn’t pay off your holiday spending. Be realistic about how much you can put toward payments but it’s important to commit to the process. Don’t forget that the next holiday season is creeping up with every passing month – you want to be done with paying off this holiday’s spending before then.
Consider Transferring Balances
If you need to, consider transferring balances from a higher-rate card to a lower-rate card. This may help reduce the amount of interest you need to pay. You may be able to get a 0% on transfer balances for up to 18 months these days, so the deals are worth checking out. Be careful and understand the details though. As far as I know, every 0% offer comes with at least an initial 3% fee. That means they tack on 3% in a lump sum of what you owe when you transfer the balance so instead of a truly free interest offer, it’s like getting a 3% loan for 18 months. While 3% still a great rate for 18 months, it’s not free. Also, some cards require you to have the balance paid in full after the introductory period. You also typically need good credit to qualify.
Personal Loans and Other Options
If you are knee-deep in credit card debt, you may want to consider a personal loan. SoFi.com, for example, offers loans as low as 5.99% APR as of writing. The rate isn’t as low as, say, a home mortgage, but it sure beats the double digits loan rates of credit cards.
And speaking of mortgages, I would think very carefully before you take a cash out refinance to pay for credit card debt. Mortgage rates are extremely low and you’ll end up saving a ton on interest, but rolling short-term debt into long-term debt may desensitize you to the devastating effects of wasteful spending. After all, these debts, when added to a 30-year loan, may seem like nothing. For example, rolling $20,000 in credit card debt into a 30-year loan at 2.5% means an increase in payment of $79 a month. The amount is not something you can just ignore, but it definitely feels much easier to handle than $20,000. What ends up happening to many people is that they add that $20,000 to their mortgages, only to then start raking up credit card debt again. The banks and mortgage brokers would let them do this over and over until they run out of equity on their home. When that day comes, not only do they lose their ability to spend more than they earn but they also lose their house. It’s a death spiral, and it happens far too often.
Use your home equity and low mortgage rates if you can promise yourself you will stay motivated to improve your finances. Otherwise, it might be better if you just focus on spending less and pay off high-interest debt. It’s your life. Tread carefully.
Start Planning for Next Year
It’s a good time to start thinking ahead even though you may still be worrying about all the spending you just did. Understanding what went wrong with your holiday budget this year can help you be more proactive once the year-end holiday season comes around. Perhaps you need to start saving earlier or maybe you need to lower your gifting budget. Whatever it is, learn from your mistakes so that the next holiday season won’t be as stressful.
It may seem daunting to bounce back from a blown budget, especially during the holidays. However, it’s possible with commitment and focus. It’s a new year and a new opportunity to wipe the slate clean and start fresh.
How did you do on holiday spending these past few months? Do you need to cut back now to make up lost ground?
{ read the comments below or add one }
Yes , obviously we all spend more on holidays but ………if you prepare ahead it is no problem . There are several possibilities to save money .
# 1. After a holiday such as Christmas , Christmas cards , Christmas decorations , etc. are on sale for half price . Buy ahead for next year .
# 2. Winter Clothing etc, is on sale the end of the season [ March ]
# 3. Summer clothing is on sale September .
# 4. Do not eat out in restaurants in November and December
# 5. Starting in October , get a part time job , 4 hours a day , 5 days a week , that will increase your income by 50 % . If I as the OWNER of 5 restaurants could work 12 hours a day , 6 days a week , why can’t you ?
# 6. Only Fools take on debt and pay the Bankster’s 18 % interest .
I really like the part time job idea. Not only do you get some extra income, but you’ll meet new people and expand your horizon on what’s possible too.
Great list Arminius!