Once the tree has been taken down, all the cookies are eaten and the decorations put away, many Americans will be left with a reminder of the Christmas season: their credit card statements. According to the National Retail Federation (NRF), Christmas spending for the 2018 season is expected to top $1,000 per shopper for the first time – up 4.1% from 2017.
Much of that spending is done using credit cards, bringing some sour news to your mailbox in January in the form of bills to be paid. Paying off Christmas debt quickly helps you minimize interest and other charges. Here are some common-sense steps to getting over the Christmas money hangover.
Is It Better To Pay Off Debt Or Invest?
Know How Much You Owe
In the heat of the Christmas shopping rush, it's easy to lose track of how many times you pull out the plastic. Before the credit card bills come in, take some time to document how much you spent and where. You can tally up your figures using your purchase receipts, or you can review your credit card purchases online since most credit card companies post purchases in real time. Don't forget to include all purchases made on payment plans, deferred credit lines or using store credit.
Budget for the First Quarter of the Year
In order to pay down your Christmas debt aggressively, you need to assess how much excess cash you have every month to pay card balances down. Set up a budget for at least the first three months of the new year, including how much money is coming in from salaries, investments and other income, and determine how much you need for non-negotiable expenses, such as mortgages, car payments, groceries, and utilities.
The leftover money is disposable income and you should direct as much as possible toward paying down your credit cards. If you are not able to pay off the full amounts in January, pay as much as you can to reduce the interest on the remaining balance. Ignore the minimum balances listed on your statements as paying only that amount might leave you in debt until after next Christmas.
Earmark Your Income Tax Return
If your credit card balances exceed your ability to pay them down quickly, assess your tax situation to see if you will be receiving a tax refund for the year. Sites such as www.turbotax.com allow you to work on your tax return without filing. In the coming January, you can begin to estimate your taxable income, expenses, and deductions to determine if you will have a windfall that can be applied to your credit card balances. As of mid-November, the IRS hasn't announced the start date for tax filing in 2019, although in the recent past it has usually come in late January. If you file electronically, you may receive your refund in February, which is great for promptly paying off the balance of your Christmas spending.
Set up a Monthly Savings Plan for Next Year
Once last year's Christmas spending has been taken care of, look toward the coming holiday season in order to avoid incurring new debt. Estimate your spending by reviewing what you spent last year. From there you can increase or decrease to cover any anticipated differences. Divide your estimate by the number of months you have left until Christmas.
Deposit those monthly amounts into a high-interest savings account and don't touch it until Christmas comes around again. Some online accounts require a few days notice to transfer funds to your conventional bank account and thereby discourage impulse spending during the year. Then all you have to do is work within your available cash balance and stick to your budget when shopping for gifts.
The Bottom Line
Excessive spending during the Christmas season can have a significant impact on your wallet and leave you dealing with hefty credit card bills in the new year. Pay them down as quickly as possible and plan ahead for next year to avoid future post-holiday debt hangovers.