Holiday Debt. Get Rid Of It.

Plan To Avoid It Next Year.

Holiday bills, representing holiday debt, will soon be filling many people's mailbox replacing the greeting cards of just a few weeks earlier. Then what? Better money management will be the key to regaining control of finances for those who ran up holiday debt.

Holiday spending is not planned for by many people, even though it is an expected major annual expense. As a result, this spending often ends up on credit cards that can take well into the New Year (and beyond) to pay off.

If you overspent at the holidays, try these tips to reduce debt.

•   Stop using your credit and charge cards. Use cash when possible to pay for food, clothes, utilities, rent/mortgage and other necessities. Keep your credit card charges to a minimum (if not zero) until you pay off your holiday debt.

•   Add up your holiday charges. On a sheet of paper or with the use of a computer spreadsheet program, create columns for each credit card, the amount outstanding and the annual percentage rate. This will tell you how much money you owe. This is important before you can structure a repayment plan.

•   Develop a repayment plan. Decide how much money you can devote each month to pay down your holiday debt. Look for ways to shave expenses to set aside an extra $50, $75 or $100 a month to reduce your holiday debt hangover. You might consider reducing long-distance calls, eliminating  magazine and other subscriptions and eating out less often. You could also have a garage sale or get a part-time job.

•   Stick to your plan. Put it into play and stay with it. Pay off the credit cards with the highest interest rates first. You might also investigate the possibility of transferring bills to credit cards with lower interest rates. Not the best step, I know, but it can help reduce payments. Of course, you get rid of the high interest cards. A pair of scissors works nicely.

•   Take the time to prioritize what it most important to you and look for areas to shave costs, such as entertaining less or giving home-made gifts. Determine if more can be conveyed by a simple thoughful gift instead of a lavish (expensive) item that has no meaning to the recipient. Examine who and why you entertain during the holiday season. If it is just done because of expectations (their's or your's) this is a good place to cut back. 

•   Create a plan for the next holiday season. The major cause of holiday debt is a lack of planning. Open a specific holiday savings account for the gifts you will want to give next year (these used to be called Christmas accounts by banks).  Use your previous year's expenses as a starting point for what you will need in the year to come. Once you have done that determine the total you will spend. Take that number and divide it by your pay periods. The number you end up with is the amount you need to set aside each time you are paid to fund this year's holiday purchases.

During the holidays, it's easy to get caught up in the spirit of the season and spend beyond your means. If this happened to you, treat this as a learning experience and resolve to do better this year.