The holidays come and go in such a flurry of festive activity, it’s easy to get caught up and ignore reality for a little while. Too bad real life catches up with everyone. Eventually, your responsibilities need to be addressed, and for many Americans, the number one task in the new year is fixing their finances. The average American was expected to spend roughly $1,000 on the holidays while still paying off debt from the previous holidays. Though you may not have realized you overspent during the hustle and bustle of the season, you can’t ignore it once the dust settles in the new year. If you find yourself buried under a mountain of bills, check in with these six steps to undo the damage your spending has done to your finances.
- Tally up your debt
Most Americans have several cards in their wallet, plus a few accounts with other creditors and direct lenders. When spread across several accounts, it’s hard to keep track of your holiday spending. Depending on their billing cycling, they may come at uneven times which canconceal the true debt you owe.
Though it’s a painful task, you need to sit down and review all your accounts to determine just how much you owe. This includes any pending purchases not yet applied to your credit card or any purchases you made with checks. Once you have this number, you’ll have a better understanding of the task ahead of you.
- Rank your individual debts
Step number one offers you a macro look at your finances. Number two helps you focus on the micro. Take a look at your various accounts and rank the credit cards and other personal loans in your name from highest to lowest. A highinterest rate will compound the amount you owe faster than any other loan, so you’ll want to prioritize those accounts that come out on top. Once you have your debts listed by importance, you’ll know which debts to pay off first.
- Create or update your budget
Now that you have your first target, you need to figure out how you can free up the cash to pay it. You can’t do this without an accurate budget. Take the time to track your monthly expenses. If you aren’t sure how to do that, use an app to help you create a budget you’re willing to check regularly. Once you have an outline of how you spend your money, take aim at those purchases that aren’t necessary. Things like takeout and entertainment are prime examples, but so are late fees, utility overages, and other miscellaneous charges you accidentally rack up over a month. Brainstorm how you can eliminate these purchases and how you can avoid incurring these charges.
- Use extra cash to pay off debt
Once they’re removed from your budget, you’ll have some extra cash to work with. Don’t spend it on something fun. Direct it towards your list of debts. But remember: just because you have one bill set in your sights doesn’t mean you can ignore the others. While you put the majority of your cash towards the top debt, make sure you’re paying the minimum payments on the others.It’s important you pay their minimum payments on time because this prevents late fees from increasing the amount you owe.
- Think about your career
For those who already live on a strict budget, there may not be enough purchases to eliminate to free up cash — in which case, your task isn’t to spend less but to make more. Depending on your job, you may be in the position to ask for a raise in the new year. Research the best strategies for asking to make sure you have the best chance at success. If you don’t believe your boss is feeling generous, you’ll have to look towards a second job or a freelance side gig to supplement your income. Though it will be a challenge to find the extra time and energy to invest in this new job, it can simplify your debt repayments. If you manage to add a job or earn that raise, dedicate this new cash immediately towards your debt, so you aren’t tempted to spend it on frivolous things like you would your regular income.
6.Think about the future
Debt repayment shouldn’t be your only financial focus in 2018. You need to think about making a safety net of savings, so you can avoid this situation the next holiday season. Savings do more than just pay for the holidays. They protect you from emergencies like necessary household repairs, unavoidable car maintenance, and medical or veterinarian care. If possible, you should direct some of your excess cash towards a savings account, but it’s not always easy to do in the beginning stages of your debt repayment plans. If savings aren’t in your immediate future, make a timeline so you know when to expect they will be. Meanwhile, take the time to research your options, so you know what to do if you need money fast until that day comes.
The faster you start step number one, the faster that day will arrive, so get started sooner rather than later. Face the reality of your holidays now, and take on these six steps to financial debt. It won’t be easy, but real life rarely is. Grin and bear it, or do whatever you need to tick off each of these steps. Find something that will keep you motivated, and your financial recovery will be a success.