See the results of our 2022 Personal Finance Study!
‘I Spent Too Much on the Holidays’ — 5 Steps to Recover
The holidays are over. Packages have been opened. But then you receive your holiday spending bills. Yikes.
The damage has been done, so now what?
Overspending on the holidays isn’t worth the debt. But If you blew your holiday budget, here’s how to bounce back stronger than before.
Step No. 1: Stop spending
It’s time to put those credit cards on ice — figuratively, but also maybe literally. If you racked up holiday debt, the best way to recover is to stop spending. That’s an easy immediate win.
Cutting back isn’t as painful as it sounds. You won’t slash your needs, just the optional extras for a short period — like that upcoming vacation. Climbing out of a holiday debt pit will make up for it. And you can always reprioritize those large expenses to later in the year.
Here are a few ways to temporarily — or permanently — curb credit card spending:
- Hide the credit card.
- Freeze the credit card in water.
- Cut up the credit card.
- Close the credit card account.
- Unlink the credit card from Apple Wallet, Google Pay, and other digital payment methods.
- Clear the credit card information from your browser.
Some proponents of debt repayment suggest hiding or destroying a credit card as a means to remove the temptation to continue spending and racking up debt. Destroying the physical credit card is extreme, but serious debt calls for drastic action. Besides, you can always replace a damaged credit card later. This means you’ll stop spending on the cards but won’t actually close the accounts. This is because closing a credit card account can actually damage your credit score — if the account contributes to credit length.
But if you have a serious problem, this may not be enough to stop overspending. Instead, you may need to close a credit card account. But only consider this as a last resort, depending on your personal financial situation.
Step No. 2: Review the damage
Time to gather your bills and review the damage. What are your debts costing you in interest and fees? Where can you cut back in your budget?
Maybe you charged $600 to a personal credit card and racked up $200 on a retailer financing plan. Make a list of each holiday debt, including the total amount, payment due date, and any other relevant information.
Determine how much money it will take to pay off holiday debt, including accruing interest. An online debt repayment calculator will be helpful in making these calculations. Now determine the timeline for how long it will take to pay off the debt. This will require digging deeper into your finances — comparing income and expenses to create a realistic repayment plan.
If you normally spend $200 a month on entertainment, cut this expense for a four-month period to prioritize paying off $800 in debt. Don’t worry: Four months will fly by, especially when it results in financial freedom.
Step No. 3: Create a budget
Compensate for your holiday debt by setting up a budget to move forward. A budget is a spending plan that aligns behavior with financial goals. It will help you determine how much cash is available to pay off debt. It also shows which expenses to cut to reprioritize extra money toward debt.
Does reducing spending sound impossible? In reality, it’s not. Try this:
Sort out the needs and wants within a budget. Needs are essential, like rent or mortgage, food, and transportation. But wants are optional, like dining out and video games, and should be the first expenses trimmed in a budget.
There are two great budgeting methods that prioritize saving.
- The envelope budgeting method uses cash and envelopes to cut spending.
- The 80/20 budget prioritizes saving 20% of income.
Step No. 4: Follow a debt repayment plan
Avoid jumping into debt repayment without a solid plan. This could lead to missed opportunities to save on interest and fees.
Two of the most popular methods of paying off debt are the “snowball” and “avalanche” methods. Determine which method works best for you.
Debt Snowball Method
The debt snowball method targets debts in order of smallest to largest dollar amount. The logic is that a borrower will gain momentum — starting with the easy wins. When the smallest debt is paid in full, the payment amount is added to the next debt, and so on.
Debt Avalanche Method
The debt avalanche prioritizes high-interest debt. Put more money toward the principal and less toward interest. In this repayment method, the borrower tackles high-interest debt in order to save money on interest, while making minimum payments on everything else.
Step No. 5: Bank extra income for repayment
A new year can also bring new sources of income. Think: a salary increase, an annual bonus, or a tax refund. These are all great options for tackling debt with a large chunk of money.
How can you find additional money to put toward debt? We suggest getting creative:
- Reduce or cut expenses entirely
- Increase income with a side hustle
- Allocate a holiday bonus, tax refund, or monetary gifts to debt
Is there an expense category you overspend on, like food? Reduce or cut this expense from your budget — at least temporarily. Even if it’s hard, stay focused and do it. Direct the extra savings to debt.
Another option is to add an additional source of income, like a side hustle. A side hustle supplements full-time work. Those extra dollars can go directly to paying off debt. But a side hustle often isn’t the only way to boost your income. A pay raise, an annual bonus, or even a tax refund are all additional sources of income that should be wisely allocated toward debt.
How to bounce back from overspending on the holidays
We spoke to financial professionals to hear their top tips on how to pay off holiday debt, limit spending, and plan better for next year.
No. 1: Returns and exchanges
Elizabeth Keatinge, founder of FundsSavvy.com
If you overspent on items for yourself (i.e. goofy holiday sweater you never actually wore), see if any of those can be returned or exchanged for items you really need.
No. 2: Pantry challenge
Steffa Mantilla, founder of the Money Tamer
After the holidays, go on a pantry challenge. A pantry challenge is when you make as many meals as you can using up the food from your pantry. You may need to buy a few groceries to supplement the meals, but overall you'll buy as few groceries as possible. Not only does this get rid of the older canned goods and leftover bags of dried goods, but your family will save a lot of money.
No. 3: Save for next season
Elizabeth Keatinge, founder of FundsSavvy.com
Plan ahead for next holiday season and start saving now. Make a promise to yourself to only spend from the designated holiday funds.
Don’t let holiday debt follow you into the new year. Tackle it with these five simple steps.
Elizabeth Keatinge is a certified personal finance counselor and founder of women’s financial empowerment site FundsSavvy.com. While working as an anchor and reporter producing business and finance content for outlets including NY1, FORTUNE, and MarketWatch, Keatinge recognized a passion for covering female entrepreneurs and women's personal financial health. FundsSavvy was born in order to take the fear out of financial planning and empower women to feel secure about their financial health.
Steffa Mantilla is a certified financial education instructor and the founder of the personal finance website Money Tamer. She aggressively paid off over $80,000 in debt and now teaches others how they can get their finances under control to do the same.