How to crush your holiday debt

REVIEW WHAT YOU OWE

First, gather a few important details about your debt. Make a list of your accounts for each type of debt you have. Perhaps you spread holiday purchases across a couple of different credit cards and a “buy now, pay later” loan, for example.

For each debt, note how much you owe, the minimum payment amount, interest rate and payment due date. Staying organized can prevent bills from sneaking up on you.

Then, look closely at the receipts from your holiday purchases, says Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling. “Compare those with what’s listed on your credit card statement to make sure that you’re accurately being charged and there are no errors that could end up being costly,” McClary says.

FIT IT INTO YOUR BUDGET

Figure out how much you can afford to pay toward debt each month. The 50/30/20 budget is one framework you can use to balance your debt with your income and other expenses. With this rule, 50% of your monthly income goes toward necessities, 30% goes toward wants and 20% goes toward savings and debt repayment.

You can also use budget apps like Mint and You Need a Budget to automatically track your spending by category, says Jeff McDermott, a certified financial planner in Saint Johns, Florida.

“That just gives somebody a baseline to get a sense of, ‘What do I normally spend? What sort of cash flow should I have to start paying down some of this debt? Are there things that I’m overspending on that I should be able to reduce a little bit to free up some cash to attack the debt?’” McDermott says.

PICK A PAYMENT STRATEGY

Once you have a solid understanding of how much you owe and what your budget is, make a repayment plan. You’ll pay off your holiday debt sooner if you make more than the minimum monthly payments.

McClary suggests using online debt calculators or tools to estimate your debt-free date. “You can test out strategies of adding different amounts to the minimum payments to see how quickly it would pay off.”

If you’re unable to pay beyond the minimum on multiple debts right now, it’s OK to tackle it one at a time. There are two main methods for prioritizing repayment: debt snowball and debt avalanche.

With debt snowball, you pay extra on the debt with the smallest balance first, while making the minimum payments on others. Once you’ve erased that debt, roll the amount you were paying into paying off the next-smallest debt, and repeat. With debt avalanche, you focus on the account with the highest interest rate first.

“The avalanche, where you attack the highest-interest rate debt first, usually makes the most logical sense. It’s the best from a math standpoint,” McDermott says. “The one disadvantage to that: It can sometimes be hard to feel like you’re making progress if that particular card is really high.”

Which method is right for you? Pick the one that you’re going to feel more motivated to stay on track with, McDermott says.

EXPLORE WAYS TO DITCH YOUR HOLIDAY DEBT FASTER

Here’s what you can do to speed up the debt repayment process:

— CONSIDER CONSOLIDATION. Consolidation combines multiple debts into one payment, typically through a personal loan or balance transfer card. This approach can make your debt easier to manage, and could reduce the overall interest rate you’re paying on it. Usually, you’ll need a good or excellent credit score. Before applying, McClary suggests obtaining a copy of your credit report and checking your credit scores to get an idea of whether you’ll qualify.

— NEGOTIATE WITH CREDITORS. Picking up the phone can also pay off. “If you think the interest rate you’re being charged is not the best rate you could qualify for right now, have that conversation with your credit card company and see if there’s a lower rate that they can give you or better terms on the card,” McClary says.

— SCROUNGE UP EXTRA MONEY. An increase in income gives you the flexibility to pay down debt faster. You can earn money on the side (say through a dog-walking gig or cash-back app) or use a windfall, such as a tax refund.