How to Recover From Your Holiday Spending Spree
The deals were good, but you spent too much. Is there a way to quickly dig out of your financial hole?
Christmas can't come quickly enough for some people's bank accounts. Between teacher gifts, hostess presents and last-minute additions to the holiday menu, you may find your already stretched budget is bursting at the seams.
While overspending is never ideal, shoppers who go overboard are in good company. James Capolongo, head of consumer deposit products at TD Bank, estimates people regularly exceed their holiday budget by anywhere from 20 to 40 percent. "Don't beat yourself up," he says. "It happens."
Rather than feeling depressed about the state of your bank account, finance experts suggest you do the following things instead:
Curb your shopping. If you've been shopping with abandon and still have more to buy, it's time to hit the pause button. Vince Liuzzi, executive vice president and chief banking officer for DNB First, advises people to tally up their spending, see what's left in their budget and go from there.
That may mean eliminating some purchases. "When it comes to spending, I like to ask: 'Is it nice or is it really necessary?'" Liuzzi says. While gifts for service workers, extended family and casual acquaintances can add to the holiday spirit, they may need to be scrapped if you've already overspent your budget.
For those gifts you deem necessary, it may be time to get creative, says Jon Ulin, managing principal of Ulin & Co. Wealth Management in Boca Raton, Florida. Making a gift or splitting a purchase with someone else are both options. If you're reluctant to scale back, "Think about how this will lead financially into the new year," Ulin says.
Assess the situation. Once the holiday season has passed, it's time to take a closer look at the damage, regroup and recommit to your financial goals. "Use that January to reassess what you want to accomplish," Capolongo says.
While it may be tempting to tap into any available pot of money to wipe out holiday debt, including emergency and retirement funds, doing so could have long-term negative repercussions. "I would never want to advise anyone to make any undue or rash decision without consulting with a planner or banker," Capolongo says. A financial professional can also help you evaluate whether options such as debt consolidation may be right for you.
Tackle the problem. After evaluating your situation, it's time to decide how best to repay debt, shore up depleted bank accounts and get back on your budget. If you've overdrawn your checking account or otherwise find yourself short on cash for January bills, you might need to call your creditors and ask if you can defer a payment. Some credit card companies will let you change your payment date, or you might be able to negotiate a lower interest rate, which can reduce the amount due.
Another option may be to consolidate high-interest credit card debt into a personal loan or similar line of credit. "You end up with a term structure and a path to repayment," Capolongo says. Credit card minimum payments mean consumers could be paying off their holiday purchases for years to come, while a term loan could have someone done with his or her debt by the end of the year.
Either way, debt accumulated by a holiday spending spree must be repaid. If you have a bonus or early tax refund, it could be an easy way to wipe out the balance. Otherwise, you may have to retool your budget to eliminate extras and free up cash to pay off the holiday excess.
That may seem like a daunting task, but Ulin says creating a properly balanced budget is key to quickly eliminating debt. He recommends people strive to follow 50/20/30 guidelines when it comes to their budget: 50 percent for essentials, 20 percent for savings and 30 percent for lifestyle or discretionary expenses. "If you look at something like the 50/20/30 rule, someone making $60,000 a year could easily pay off a $6,000 credit bill in six months," Ulin says.
Have a plan for next year. The final step to recovering from your holiday spending spree is to have a plan in place to prevent a repeat situation next year. "It's critical to have a household budget you hold true to," Liuzzi says. Rather than create an aspirational budget – one that is based on what you think you should spend rather than what you actually spend – be realistic about where your money is going. Then look for ways to carve out money for extra savings or debt repayment. "Even if it's a small amount – $10 a week or $50 a month – that will help you out," Liuzzi says.
Skipping this step is why many people overspend year after year. Without a spending plan, "A lot of people roll the dice and don't care," Ulin says. Don't leave your financial future to chance. Make this year the last one you let holiday spending set you back.
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