December holidays are a joyous time — spending time with family and friends, making your home festive with decorations and most of all, giving gifts to your loved ones.
According to a 2014 survey by the National Retail Federation, about 38 percent of consumers planned to use credit to purchase their holiday gifts. But while it feels better to give than to receive, it won’t lessen the sting of seeing that credit card bill in the mail once the holidays are over.
"This is a wonderful time of year," says John Heath, directing attorney at LexingtonLaw. "But you need to make sure you're not cutting into your own financial obligations buying gifts for others."
In the case of some, holiday debt can last longer than you might like. The good news? There are many ways to take control of your bills and make them disappear quickly and efficiently. Be prepared for next year and try one of these ways to save money and painlessly pay off your holiday shopping once and for all:
Pay attention to credit card details
If you’re a frequent credit card user, it’s important to focus on the fine print for whether they entail circumstances that could generate higher charges or annual fees. For example, new Macy's cardholders receive 20 percent off, but the savings max out at $100. They also have an annual percentage rate of 24.5 percent for purchases on its card, which means the discount may not be financially worth it should you carry a balance beyond a month or two.
However, cards with zero percent interest on purchases for a year or more can save you money in the long run. But just keep in mind that one late payment can result in the end of the interest rate grace period, which can wipe out your initial savings.
"Often, if the balance is not completely paid off prior to the expiration date of the time period, a high interest rate is charged going back to day one," explains Ray Benton, a certified financial planner based in Denver.
Focus on the highest interest rate card first
When you have a balance on more than one credit card, most people tend to simply pay the minimum amount due on the accounts, or pay off an equal amount among accounts.
“It will be hard to get out of debt for the long term that way,” says Kasey C. Gahler, a Texas-based certified financial planner. “You want to have a laser focus on the highest interest rate first. Once that is paid off, go to the next highest rate.” The bill with the highest interest rate is costing you more money, and ridding that as soon as possible will save you more in the end.
Utilize the “snowball method"
Invented by Dave Ramsey, radio host of “The Dave Ramsey Show” and personal finance author, the “snowball” strategy involves making minimum payments on each debt beginning with the lowest one. Once you pay that off, you begin on the next smallest debt until that one’s demolished, and repeat until you’re through.
“List your debts in order of smallest payoff balance to largest,” says Ramsey. “Every dollar you can find from your budget goes toward the smallest debt until it disappears. A thousand dollars can eliminate that nagging $52 medical bill or that $122 cell phone bill from eight months ago.” By starting small, you build a holiday debt-payoff momentum that “snowballs” to larger debts.
Pay your tax return forward
"Most people want to spend their tax refund on going to Disneyland or whatever,” says Ellie Kay, a family financial expert. But by filing early and receiving your refund, you can put the money toward your holiday debt, which in turn will free up money that you would’ve been otherwise spending paying down your credit cards. If you receive a large enough tax return, you may even be able to demolish your holiday debt in one swipe.
Make small sacrifices
Do you frequent Starbucks each morning? Go out to eat more than once a week? If that’s the case, you might be surprised at how eliminating unnecessary spending in small ways can make paying off your holiday debt that much more attainable.
“If you sacrifice Starbucks for a month, you can save a couple hundred (dollars),” Kay points out. “If you make double batches of casseroles and freeze the second portion, you've got the convenience of eating out without the expense.” Get creative and determine the best ways to save a little bit here and there to be put toward your balances.
Set a realistic budget for next year
If you’re finding yourself in a holiday debt pickle year after year, it’s a good idea to plan ahead.
“Take a couple of minutes to go through what you spent this past holiday season, and tally it up,” says Gahler. “Then divide that total by the remaining months of the year, and try to build it into your budget to put that amount away each month.” That way, you’re saving for the holidays all year long, and come December, you’ll have a good chunk of change purely for holiday spending.
Start saving now so you can enjoy a holiday season without racking up the debt.
Includes copyrighted material of IMakeNews, Inc. and its suppliers. All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.