How to handle holiday debt in january

After years of debt, Rachel Kramer Bussell came to the realization: “If I don’t act proactively about it, I’m going to be in debt for the rest of my life.” For Bussell, a freelance writer near Atlantic City, N.J., that meant cutting back on spending and putting any available money toward the principal.

“Starting to see it go in the right direction helped me improve,” she says. “I felt, maybe there is a light at the end of the tunnel.” Bussell, whose debt came from credit cards, student loans, and back taxes, finally paid off all of her debt, which at one point exceeded $100,000 in 2020.

Debt repayment Is a common goal with the start of the new year. Holiday shopping bills and other year-end expenses are often paid off in January, and this year, higher interest rates are making debt more expensive. According to the Federal Reserve, revolving debt, which includes credit card balances, continued to rise throughout 2022, rising at an annualized rate of 10.4% as of October, the most recent figures available.

To attack your debt this month, try these strategies:

Before creating a plan to pay off debt, it’s a good idea to think about how it came about in the first place, says Eileen Grogan Lutroll, an educator and financial advisor in Dublin, Ohio. “Was it pressure? Excitement? Habits? Find out the reasons that led to this debt, and sit with the emotion for a moment,” she says.

“Let’s not berate ourselves, but focus on solutions,” she adds. Skipping this introspective step can make it difficult to start taking action, she says, because it’s easy to think about just feeling bad about past choices.

Listing all of your debts with accompanying interest rates helps you get organized and Decide what to pay off firstsays Luttrull. She suggests starting with the debt that carries the highest interest rate, also known as the debt avalanche method, but others prefer using the debt snowball method, where you start with the smallest debts first.

Next, find money in your budget to redirect toward debt payments. If your student loan payments are paused, Luttrull says, you can use that money to pay down credit card debt, for example. You can also look for low-cost ways to socialize with friends, such as hosting game nights or going for a walk.

Emma Johnson, founder of the website richysinglemommy.com, suggests combing through all of your bank and credit card statements to immediately identify recurring costs you can cut. Streaming services, gym memberships, and cable bills are common targets. Spring cleaning for the New Year. What can you modify? she asks.

With budgets so tight amidst inflation, Earn extra money It can be the best option to find cash to pay off debts. Cedric Nash, author of Why Should White Men Own All the Wealth? In our tech-heavy world, the options are many, says the founder of the nonprofit Black Wealth Summit: “There’s a lot you can do from your living room. If you have technical skills, you could be a computer technician, or if you’re good at math, teachers They get paid over $100 an hour. Look at your skill set, then use it to tackle some of your debt and grow your wealth.”

Nash, who is based in St. Petersburg, Florida, says his friends earn a side income by doing everything from deejaying to hanging Christmas lights.

If you can qualify for a credit card with a 0% introductory percentage rate, then… Convert your existing credit card debt On that card, it can give you more time to pay it off without accruing additional interest, says Matt Elliott, a certified financial planner and founder of Pulse Financial Planning in Rochester, Minnesota. You can also consider looking for a personal loan with an annual interest rate lower than that of your cards.

“If you have decent credit, it could be an opportunity to reduce your interest cost to transfer the balance to a 0% credit card or a personal loan with a lower interest rate,” he says.

Nash says rewarding yourself when you hit milestones, like paying off a credit card, is an essential part of staying motivated. “No one likes to pay the bills all the time, so we need a reward system.” This could mean going on a trip or making a long-awaited purchase (as long as it doesn’t add to your debt).

And to keep debt in check as the year progresses, Johnson suggests starting some new traditions: Instead of gifts on Valentine’s Day, for example, she writes love poems dedicated to her children. “It’s really useful, and they’re expecting it now. And it’s free.”