If you woke up on Jan. 1 groggy with a holiday debt hangover, you weren’t alone: 3 in 5 shoppers took on some form of debt in the previous holiday season, NerdWallet’s latest holiday shopping report found.
Much like a champagne-fueled headache, this debt can persist long after holiday merriment fades. Of those who took on holiday debt in 2018, 35% were still paying it off when surveyed in mid-September 2019, the report found. In fact, only 24% of those who incurred debt during the holidays paid it off in the first billing period.
You can beat the odds, though, and work to quickly cleanse your finances of last year’s decisions. Here’s how to figure out when you’ll be free of holiday debt and speed your payoff timeline.
Assess your debt
Before you can find your debt-free date, you’ll have to take stock of your balances. It might be a little painful, but this step sets you up for success.
“First and foremost, take an inventory of your debt,” says Michelle Goeppner, director of credit product strategy at Alliant Credit Union, a nationwide financial cooperative based in Chicago. “People may forget about a store card they took out during the holidays. What are the balances, rates you’re paying and to whom? List all those out.”
Start by pulling out all your credit cards, logging into your accounts online and assembling a list or spreadsheet with the details. Make sure you know each account’s balance and interest rate, as well as your total debt load.
Know what you can pay
With your credit card accounts sorted, turn to your budget.
“Think about what you’re capable of paying toward your debt,” says Lauren Anastasio, a Pennsylvania certified financial planner with SoFi, an online financial services company. “Evaluating your monthly cash flow is really where that starts.”
One guideline is the 50/30/20 budget, where half your income covers needs like housing, 30% goes to wants, and 20% goes to debt payments and savings. Depending on your income and your debt payoff goal, you may need to temporarily trim your “wants” money to funnel more cash to paying off debt.
Find your debt-free date
Next, make a plan to winnow down holiday debt — and figure out when you’ll be debt-free.
A debt payoff calculator can do the work for you. Punch in the details of your debts and what you can pay monthly, then toggle between different payoff methods to see what might work for you and how much you might be able to save in interest or time.
The “debt snowball” and “debt avalanche” are two common payoff strategies. With the debt snowball, you focus all your extra payoff money on the smallest debts first, with the idea that getting small wins can keep you encouraged. But the debt avalanche, where you focus on highest-interest debts first, may save you time and money on interest.
Whichever method you choose, pay as much above your minimums as you can.
“If you’re only paying the minimum, you’re going to really be paying it forever,” says Tania Brown, a certified financial planner in Atlanta with SaverLife, a nonprofit that helps people build savings. “Sometimes people are really surprised by how much difference $50 can really make.”
On average, shoppers anticipated they would charge on credit cards $660 in gifts in the 2019 holiday season, according to the shopping report. If they wiped that out within four months, they would pay just $22 in interest assuming an interest rate of roughly 17%. But if they paid only the minimum on that amount, paying it off would take nearly four years — and they would incur roughly $240 in interest charges.
Boost your payoff dollars
If, after using a debt payoff calculator, you find that you’ll be paying holiday debt for months to come, use a strategy or two to boost your payoff:
Increase your income: You can pump some additional cash into your budget, for instance by selling things you no longer use or picking up a temporary side gig.
Use your tax refund: File your taxes early if you anticipate a refund and dedicate that money to wiping out debt.
Look into consolidation: Collapsing multiple debts into one, with a personal loan or a balance transfer credit card, means fewer bills to track and can make debt less expensive by lowering your interest rate. Compare options, but know that you’ll typically have to have good or excellent credit to qualify.