Tackling holiday debt in the New Year

Heading into the New Year can often provide a fresh start, but if the holiday season came with a lot of expenses, there may be credit card debt to pay down as well. If your spending exceeds budget, there are several ways to pay down debt and get back to more solid ground financially. Here are ways to knock down outstanding balances, gain useful financial habits, and avoid carrying holiday debt into next year.

Create a payoff plan

Putting a plan in place that can help pay off credit card debt can make this potentially stressful task much less complicated. Getting the balance paid down quickly can prevent interest from accruing each month and making the pay down process take that much longer. Whether there is one credit card or multiple, creating a payoff strategy for each that fits into your budget can make paying off holiday debt more successful. After listing the debts and the amounts that need to be paid, there are different approaches to reaching a zero balance, including:

Snowball method

With this strategy, accounts are listed from highest to lowest balance. On the account with the smallest balance, the highest payment possible is made to decrease the total amount due more quickly. Once this is paid off, money then goes to the second smallest balance while still paying the minimum payments on all other accounts. By carrying over the amount to the next balance, soon, all accounts will be paid in full.

Avalanche method

In contrast to the snowball method, the avalanche method pays down balances with the highest balances and interest rates first.

Financial strategies for the New Year

Common New Year’s resolutions often involve making financial improvements, whether putting more towards retirement savings, starting an emergency fund, or paying off holiday debt. People often wish to develop new financial habits as they enter a new year. Putting into practice new money skills can help put you on the right path toward achieving your financial goals and being prepared if unexpected expenses arise. Here are a few strategies you could consider.

Set a budget

A solid budget is the foundation of a strong financial plan. Finding a method that works for you is key to sticking to a budget and keeping financial goals on track. Do you like to make lists? Start there. Spreadsheet guru? That’s great, too. Want to automate it? Plenty of websites and apps help break down income and expenses and show where money is going. Knowing what’s coming in and going out can help you become better informed and allow you to make changes that align with your savings goals.

Boost financial literacy

As financial understanding grows, a person can feel empowered to make sound financial decisions that impact their life. Plenty of online tools, podcasts, and resources are designed to help you budget, plan, and save for the future. Partnering with a financial professional can also offer expert guidance and explanations of different financial concepts and solutions that can be useful on your financial journey.

Develop a savings plan

Many experts agree that having an emergency fund equal to 3 to 6 months of salary¹ can make a huge difference in financial preparedness for unexpected expenses. That might sound like a big number, so starting small is okay. A budget can help determine where money is being spent and where there are opportunities to put more toward savings goals. If there are areas where you spot overspending, you can strategize how to reduce those expenses and potentially free up funds that can go into savings.

Explore investing

For those who wish to save more for certain goals like a child’s education or retirement, creating a comprehensive financial plan can help turn those dreams into reality. With a diversified financial strategy, there can be opportunities to explore investments that match personal goals and risk tolerance. Certain investments can be riskier than others but may offer a higher potential for growth. A financial professional can help explain each option, the risks involved, and how to set a plan that works for you.

Make a holiday budget

To prepare for the upcoming holiday season and prevent carrying debt into next year, taking a proactive approach now can help keep spending in check and reduce financial stress in the future. Using your budget to set spending limits for the holidays and then carving out the amount needed to cover these costs can help keep expenses under control. Strategies for planning for holiday spending include:

•  Reviewing how much was spent on holiday-related costs last year
•  Listing all holiday expenses with the total amount needed
•  Depositing money automatically each month into a holiday savings account
•  Shopping throughout the year to break up costs and avoid last-minute buying

Creating a holiday budget early in the year can help prevent overspending, increased debt, and excess money stress—allowing you to enjoy the season and head into the New Year in a stronger financial position.

1. CNBC, Single workers, families, retirees: How much cash you need in an emergency fund at every career stage, according to advisors, Sept. 2022

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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