Christmas always takes a toll on household finances, so it’s no surprise that around a quarter of people expect to pay at least part of the cost on a credit card, with one in seven likely to use a ‘buy now, pay later’ option to pay for the festivities.
But when you’re faced with a debt hangover in January, money management strategies that seemed dodgy in December often look bleak.
Some people may already be worried about their debt. Others may be lulled into a false sense of security by minimum payments that feel quite affordable, so they overlook how debt is building up behind the scenes. This means anyone with borrowed money can take stock and develop a strong repayment plan.
Your first priority is to maintain minimum payments so you don’t incur additional costs on top of your debt. After that, focus on paying off your debt as quickly as possible.
If you plan to avoid paying off your loan at the beginning of the month and just borrow more money at the end of the month, then you need to approach this systematically. Work out what costs you can cut from your day-to-day expenses to put more money toward repayments, and how much you can realistically repay.
Read more: 15 ways to save money while single
Then think about the debt you want to pay off first. There are two common methods. The first is the avalanche method, where the debt with the highest interest rate is paid off first. This means you pay less interest and can pay off your debt faster.
The second is the snowball method, where you pay off the smallest debt first and then accumulate the largest debt, so that you will have a sense of accomplishment. Avalanche is more cost-effective from a financial perspective, but some people need regular wins that snowball.
When you do this, it also makes sense to move the loan to something cheaper, such as a 0% credit card. However, there is a key proviso: Consolidating borrowing cannot be used as an excuse to continue accumulating debt elsewhere. You need to draw a line in the sand.
For some, the problem is more serious and more difficult to resolve through money management alone. In these circumstances, it’s worth considering a debt charity like Stepchange.
They can educate you about your options and help you navigate your relationship with the company you owe money to. It’s hard to turn things around when things get so bad, but you don’t have to do it yourself
For some people, paying off debt will be a brief and painful experience, after which you can focus on your broader financial situation. For others, short-term debt tends to arise fairly frequently. If this is the case, you can’t use it as an excuse to neglect other parts of your finances.