Did you know 39% of people fund Christmas with credit cards? Some of those people will still be repaying the 2013 Christmas debt in 2023! Do you think in 11 years your child, your sister or even your spouse will remember the gifts they got in 2013? Ahhh…the Christmas Debt Hangover!
I am very fortunate when I say not a dime of my Christmas fund comes from credit cards. I literally pinch pennies and hit amazing sales to do what I do. It takes a lot of planning, making a list and checking it twice…or maybe two thousand times. Yet even after meticulous planning, I feel like it takes weeks to recover from Christmas financially.
The first thing I do after Christmas is sit down to figure out what I owe and to whom and what bills I want to see paid off in the next 5-6 weeks. It may be shocking to see exactly what you owe but sometimes that shock is exactly what you need to get you to start pinching those pennies!
The next step is to figure out exactly what you expect in for income in the next 5-6 weeks. If pay varies, estimate low because having more to work with than anticipated is a bonus, having less to work with than expected is grounds for budget panic. I never do detailed planning for more than 6 weeks for reasons that something unplanned ALWAYS seems to happen if I try to plan long term.
If your outgoing money flow is more than your incoming money, you need to figure out a way to close that gap. You have two choices to close the gap. You can increase your income by the means of working more hours or an additional job. If that is not an option to you at this point, then you must decrease your bills. For financial success those are the only two options when bills overshadow income. Increase income or Decrease outgoing.
I have numerous times worked a second job to make ends meet. As I get older, my energy decreases and time is slipping through my fingers, I find that option no longer interests me. So decrease outgoing it is. It is similar to how the body processes calories. Consume calories (income) and don’t exercise or burn it off (spending) and you will get fat. I want a fat bank account. : )
Take the list of all your bills/ debt and review it. I recommend doing this when everyone is in bed and with a glass of your favorite beverage. Wine may benefit this task, as lowered inhibitions may get you to downgrade your cable package before your husband wakes up and finds his NFL Ticket cancelled.
I am just kidding. All decisions should be discussed with your partner in crime. (If need be I can pen up a blog that guides you on how to persuade people into agreeing with you).
Over the next few weeks I will be detailing how to lower your outgoing costs. It is possible in every household but just like anything that is desirable, it takes commitment and hard work. Sacrifice. I find most people are unhappy with their financial situation but very unwilling to make necessary changes to fix it.
The first change is open your wallet and look at the amount of charge cards you have. Do you cringe when you get your bills in the mail? Are you able to pay off your credit card balance in full each month? Are you even aware what your interest rate is on unpaid balances?
Don’t get me wrong, I think credit cards used wisely are very effective in building credit and great in emergencies, but only if you can afford the payments. If you are struggling just making the minimum payments, cut the cards up. If you can’t bring yourself to cut them up, put them in a safe place in your home where it is not readily at your access when out shopping.
If you don’t have a very low or 0% interest rate with no annual fee, then it is time to shop around for a new credit card. There is no reason to pay an annual fee. If you have benefits that you don’t want to lose with your credit card such as frequent flyer miles, then call and ask the company to waive the fee for you. Chances are if you pay your bill on time and are an active customer, they will waive it for you.
If you need the credit card for credit building purposes, make sure you are making purchases that you have cash on hand for and then tuck the cash into an envelope for when it’s time to pay the credit card bill.
If you have several credit card balances, start with your smallest balance and power pay on it until it is paid off. “Power pay” means dumping any extra income onto the bill to get it paid off. Make the minimum payments on your other credit cards until you get the smallest balance paid off. Then move the the next smallest balance. The most important thing is once you pay a balance off, tuck the card away or cut it up.
Do not rely on the credit card to make monthly bill payments or purchases of necessity like groceries unless you are tucking the money aside towards the credit card bill as you charge it to build credit. Otherwise, this could cause a major financial storm.
So Step One of curing the debt hangover: Eliminate unnecessary credit cards and credit card fees. Make a list of all credit card debt, from lowest to highest. Most importantly, do not add to it. Snip and clip if you can’t control impulse buying.
Next addition will be about bank fees and the famous Dave Ramsey envelope system!