Several years ago, when I was living a lifestyle that was at least partially funded by credit card debt, I absolutely hated the middle of January.
Every single December, I would overspend. I’d buy expensive gifts for everyone on my list. Sarah and I would buy a pile of gifts for each other. We’d eat a lot of expensive foods. We’d travel. We’d decorate. We’d have “shopping days” where we’d also stop at coffee shops, go out for lunch, and usually end with an expensive supper.
It felt fun at the time, but by early January, it had faded. Then, mid-January would hit and the bills would start rolling in and it felt awful.
The debt hole we were in was deeper than ever.
In fact, the last year that we were in such deep debt, just before we committed to a turnaround, was particularly awful. I have a strong memory of a snowy day where I was sitting in my vehicle after coming home from work with my infant son in the back in a car seat. It was snowy and I was sitting there parked near our apartment, idling and not wanting to go get the mail, go inside or face any of it.
Of course, it doesn’t help that this is right in the middle of winter, where many people in the northern hemisphere are dealing with at least a bit of seasonal affective disorder.
If you’re feeling overwhelmed with post-holiday debt, most likely perched atop a lot of other debt — student loan debt, car loan debt, mortgage debt or other credit card debt — trust me: there is hope and there is a plan. Not only can you get out of this situation, you can create a situation where it doesn’t repeat itself without feeling miserable about your life.
By the very next holiday season, Sarah and I were almost free from credit card debt. We kept our spending pretty well in check and managed to not accumulate a single dollar in additional credit card debt that season — or any season after that. By the holiday season after that, we were free of debt aside from our mortgage. Four years later, we paid off our mortgage, too. It wasn’t miserable or sad or lonely, either.
You can do this. You can dig yourself out of this hole. Here’s how.
Figure out where your wasteful spending is and cut it out.
Sit down with all of your credit card bills and bank statements that you can find from the last few months and a highlighter. It’s time to reveal some truths about your spending.
Go through each and every line item on those statements and, for each one, ask yourself a simple question. “Did this spending bring any lasting value into my life?” Be honest about that question. Do you even remember that expense? If you do, did it really bring anything into your life beyond an immediate and quickly-fading burst of pleasure?
If it didn’t bring any lasting pleasure into your life, highlight it and keep moving.
You should also include things where you actually needed a cheap version of the item but you bought a more expensive version for no real reason. “I was hungry!” doesn’t justify a $40 restaurant meal, for example.
When you’re done, go back and look at every single highlighted item. Look at how much you spent on things that really don’t matter at all. That stuff needs to go.
It’s fine to spend money on things that actually matter to you in some lasting fashion, but the truth is that a lot of spending doesn’t matter in any lasting fashion. It’s that stuff that doesn’t last, the stuff you can barely remember, that you have to learn to cut out. You don’t cut the meaningful stuff; you cut the stuff that doesn’t mean anything.
One big thing to look for is patterns. Where are the places where you’re repeatedly spending money on forgettable things? Do you make a lot of forgettable Amazon purchases? Do you have an astonishingly large number of coffee shop expenses? Those are the expenses to really target.
In my situation, I discovered that there were several rather meaningless routines that I was following that were simply sucking the money right out of my pocket. For me, the big one was the local convenience store that I would almost automatically stop at on my way home from work. I’d usually grab a beverage and a snack, spending $5 or $6 on something that could have cost $1 if I’d just waited until I got home.
Thus, one big change I made was to simply have a few of my favorite snacks at home, bought cheaply and in bulk, so that I wasn’t tempted to stop at the convenience store. Before long, I actually cut out the snack itself — it wasn’t doing my health any good — and so I wasn’t spending anything. I moved from dropping $6 at a convenience store about 15 days a month to maybe eating $2 worth of bananas as snacks after work, and I completely didn’t miss the difference.
Another switch I made was to simply start buying everything in store-brand form. I basically tried the store brand version of every product I could at the store. If it didn’t click with me, no big deal; I’d get the name brand version the next time. Guess what? Today, I buy almost nothing name brand if there’s a store brand available.
Remember, you’re looking for the forgettable, unimportant expenses, not the stuff that matters deeply to you. Does it matter if you’re buying store brand detergent if your clothes get clean? Is your life permanently made better by buying coffee from a coffee shop instead of getting it at home?
Take those forgettable expenses and intentionally adopt new habits that cut them out. Alter your commute so you don’t stop for a goodie. Delete your credit card info from Amazon. If you’re altering a behavior or adopting a new one, make it a point to remind yourself of that change at least once a day — phone reminders are a good way to do that.
Another simple step to take along these lines is to nudge down your energy use. Here are 14 ways to drop your energy use any time of the year, 20 more winter-specific energy strategies, and 17 more summer-specific techniques. These steps cut your energy bill without doing anything negative toward your quality of life. It’s just a smaller bill in your mailbox.
While you’re at it, check all of your other bills line by line and contact the company if there is any line you don’t understand or don’t want. Ask to have that charge eliminated or reduced going forward. You’ll be surprised how many can be cut, and if you reduce all of your regular bills by 5% or 10% with no difference in service, that’s money in your pocket.
All of this frees up money that was previously tied to completely wasteful, forgettable spending. That money is going to be your resource for turning the debt around.
Clean out your closets.
While it’s nice to reduce your ongoing expenses, it’s really powerful to get a big jump start on paying down your debt, and the best way to do that is to clean out your closet.
Cleaning out your closet and selling off a lot of excess items that you don’t use has the dual benefit of not only generating some quick cash, but also clears out a lot of space in your home. Many homes wind up cluttered in the immediate aftermath of the holidays, and cleaning out your closets can really help.
Go through your closets and your collections, identifying items that simply aren’t bringing you value. Are you going to use this item at any point in the next year or two, realistically? If not, sell it off.
How do you sell those items? There are many ways, depending on the item. If it’s a niche hobby item, there may be specialty stores in the area that will help you sell the item secondhand, or you may be able to sell it in online groups related to that hobby. For more general interest items, you can sell items easily on Facebook Marketplace or Craigslist. Clothes in good shape can often be sold at consignment shops.
For the most part, you won’t get as much out of these items as you paid, but that’s not the goal. The goal is to turn something that’s just sitting in your closet into cold hard cash that you can then turn into an immediate boost toward your debt repayment goals.
Stop the interest rate bleeding.
Another powerful step you can immediately take is to look for zero interest or low interest balance transfer offers. You can then transfer your high-interest credit card debt using these offers and transform it into debt that doesn’t accumulate any interest at all (or very little interest) for the next year or so, depending on the offer.
Such offers typically require you to sign up for a new credit card. Upon signing up, you give the new credit card company the account information for your old card with a balance and they pay that old balance off. You’ll now have a balance with the new card, but that portion of the balance won’t accumulate any interest for a while.
This is a great idea if you have a plan in place to pay off that balance within a reasonable period of time. However, when the zero-interest period ends, interest rates kick in and they’re often at least as high as the rate on your old card, if not higher. So, you need to be paying down that balance even though it’s not earning interest right now.
Also, cards with a good balance transfer offer often have a poor rewards program, so it’s usually not a good idea to use that card for additional purchasing. If you still want to use a card for purchases even as you’re trying to pay them off (not the best idea), you probably want to use your old card.
Make a debt repayment plan.
You’ve taken those steps. You’ve reduced some interest rates. You’ve got some money in your pocket from selling things off. You’ve made some changes to curb your spending. Now it’s time to put them all together in a debt repayment plan.
Make a list of all of your debts ordered by interest rate with the highest interest loan first. Take the money you’ve earned by selling things off and make a huge extra payment on the first debt. If that would pay it off, pay down the next debt on the list.
After that, aim to make the minimum payment on each debt on that list while making a large extra payment on whichever debt is at the top of the list. When you pay off the debt at the top, cross it off.
What you’ll notice is that as you pay off each debt, you’ll have more money available the next month because you’ll have one fewer minimum payment to make. In other words, things will start to go faster and faster as you move down this list.
If interest rates change — for example, if you have a zero interest balance transfer offer that ends and it jumps to a much higher rate — reorder that list. If that means there’s a new debt with the highest interest rate, start making big extra payments on that debt instead.
Build an emergency fund and make it automatic.
Once you have that debt repayment plan in place, one thing you’ll quickly notice is that unexpected expenses can really derail your progress on that plan in a given month. Some months, you’ll be able to make a huge extra payment, while in other months it’s very hard. Sometimes life hands you lemons.
A good approach to have going forward is to build an emergency fund automatically so that when a big emergency hits you don’t have to go into debt to handle it. It’s pretty easy to do, too.
Just go to your bank (or your online banking service) and set up an automatic weekly transfer from your checking to your savings account. Set it at $20 a week, for example, and then just forget about it for a while. If you let that automatic transfer sit for a year, you’ll have $1,000 in your savings account that you can tap into for an actual emergency. That can help you repair your car when it doesn’t start or take an emergency trip to see an ailing loved one without going right back into debt.
My advice? Never turn off that automatic transfer. Just let your emergency fund keep building automatically when things are good so that you have cash in hand when things go bad. This will keep you from building debt when an emergency hits and furthermore, can keep you feeling like you’re going in the wrong direction on your debt repayment plan.
Don’t stop, even if you make a mistake.
When you first head down this path and see the debt melting away like snow in the early spring, it can feel amazing. Finally, things are headed in a great direction!
Then, something unexpected happens. You’re hit with an unplanned expense. You slip up and spend a lot of money on unimportant things.
Just like that, your debt balance goes up rather than down, and it feels hopeless. You feel like giving up.
The path to paying off debt is not a straight one. There are setbacks. There are mistakes. You’re human — you’re going to do something wrong along the way.
The key to real lasting success isn’t the initial effort or the initial mistake. It’s whether, after a mistake, you pick yourself up, dust yourself off, figure out what went wrong and keep moving forward.
The key to doing that, in my experience, is to focus on today as the most important aspect of success. It doesn’t matter what you did yesterday, even if you messed things up. Tomorrow doesn’t matter, either — success might be close or it might be far off, but that doesn’t change the fact that today’s success is the piece that matters.
Today is the day you decide whether to make bad spending choices or to keep moving forward on your progress. Yesterday’s mistakes and successes don’t matter, nor does tomorrow. You only have control over today. You only have control over that choice right now.
Choose to move forward when it’s tough. Choose to say “no” even when it’s tempting. Don’t put off that decision until tomorrow. Don’t coast on the good decisions from yesterday or wallow in pity over the bad ones from yesterday.
It’s about today. Today is what matters.
Talk to people now about the upcoming holidays.
One final, vital tip in dealing with post-holiday debt is to make sure that it doesn’t repeat itself in the upcoming holiday season, and the way to do that is to talk to the people you exchange gifts with to see if there’s a better way of doing things.
Go through the list of people you bought gifts for and received gifts from and decide whether or not it might make sense to make a change to that gift exchange in the coming year. Maybe it makes sense to just end that gift exchange, or maybe simply to cut back on it. Maybe a big family gift exchange might make more sense as a drawing or a “white elephant” exchange rather than everyone buying for everyone. Maybe you could agree to make homemade gifts rather than buying stuff, which is usually much less expensive (you’re spending time rather than money, typically).
Talk it over with those folks sooner rather than later. Don’t bring it up in October or November, when people may have already budgeted and bought items.
A few simple conversations right now, and perhaps reminded in October or November, can keep your budget for the holidays in the coming year much lower than it was this year, which can help keep holiday debt in check.
Remember, the thing that matters most during the holidays is quality-focused time spent with people, not the purchasing of expensive gifts.
You can do this.
Holiday debt might feel immense and frustrating right now, but you can do this. You just need to have a plan, make some sensible spending changes, and move forward one day at a time.
Before you know it, your holiday debt will be long in the past — and other debt might just be gone as well.