The Best Ways to Fix Your Holiday Debt Mistakes

Are you feeling the sting of a holiday financial hangover? If you overspent on Christmas or other holiday shopping, it’s not too late to get back on track and in good spending and saving habits again. Here are some useful strategies to get started.

Rope in the budget

If debt has piled up like mile-high slices of ham and turkey on your plate over the holidays, the first thing you will need to do is look at areas of your budget where you can start to trim and divert money elsewhere. However, you can’t start getting your finances in order if you don’t take a close look at how much you are spending and in which areas.

As an example, do you have a defined grocery budget, or do you simply go to the store and buy what seems like a good idea? Maybe fanciful holiday eating put your taste buds into lavish party mode. Add up what you are really spending on food each week and month and you will very likely find many opportunities for “finding” money you are otherwise not spending wisely.

Take a close look at all that you spend on food and beverages.

Don’t limit your inspection to what you spend at the grocery store, but also including what you’re spending on snacks on the go, going out for lunch or dinner and beverages here and there. Plenty of money can likely be found that can be diverted to better purposes, like getting out of debt and getting ahead of the game for the coming year.

Spenders: Give yourself limits and use tricks to stick to them

Those of us who tend to be spenders know easy it can be to accidentally spend more than planned, or, more likely, talk ourselves into something once the desire starts burning for something that has caught our eye. Before we know it, the money spent here and there, on this one more thing and that other thing that “is only a few bucks,” can really add up quickly, so how can a spender define limits that are easier to strictly follow?

An obvious way would be to limit yourself to bringing only cash on shopping trips, leaving the debit and credit cards at home, but how practical is that? For most of us, that would mean making a trip to an ATM, a trip back home to put the cards away, and then a trip back to the store to make purchases -- too much work and running around!

A better strategy, and one much easier to do is to purchase a gift card for yourself with your budgeted amount on the card. If you’ve decided to limit grocery spending to $75 per week, then buy a $75 gift card good only at your favorite grocery store. If you happen to have a cash back credit card that earns points for groceries, you should use that card to earn even more.

Take it and leave the credit and debit cards at home when you go out for groceries. It will force you to make wiser choices and leave the luxury goods out. Use your smartphone's calculator if you need to, and give yourself the gift of paying down some of the holiday extravaganza a lot sooner.

Avoid major purchases unless they result in near-term savings

You did it: you overspent during the holidays, so now it is time to make some sacrifices about purchases you might have been hoping to make early in the year. That said, if the plans to purchase a different car will also result in a lower monthly payment, now may be a good time, unless the down payment will exceed what you’ll save in the next few months.

If that is the case, the money is probably better spent later on, as is the case with refinancing a mortgage. The upfront costs to put a new mortgage into place may exceed the savings you’ll reap over the next few months, so putting the money toward debt is probably a better idea. Then, you’ll also be in better shape when you apply for the mortgage refinance, because you’ll carry less debt, making you more attractive to lenders.

And it’s safe to say that earmarking your tax return now to pay off debt is a much better idea than planning something extravagant. Push the thoughts about the latest iPhone or Smart TV out of your head now. You will thank yourself later.

Chop away at the money-eating cards

If too much holiday spending has gone onto credit cards, the one with the biggest balance might not be the biggest villain. If the balances on your cards are similar, then the interest rate could be eating up more of your hard-earned money than you might expect. Look at the card terms carefully by studying your bill. Take a look at the interest rate and the amount you’re being charged each month in interest. You could be throwing away hundreds of dollars each month in interest, forcing your principle balance to grow.

Figure out how much more than the minimum payment you can put on the card each month to bring those high-interest balances down. Set your goals high and try to pay at least double the minimum payment each month.

Open a high-interest savings account

You’ll need to find a safe place to stash some cash. Start the new year with a fresh slate, new savings goals, and a free, high-interest savings account. Now that you’ve figured out ways to trim your budget and climb out of debt, don’t turn your back on the importance of saving money.

Give yourself some rigid savings goals, make clear, strict rules about how the money may be used (a well-defined emergency, next year’s holiday spending, etc.) and add some funds with each check.