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The tree has been taken down, decorations put away and all you have left now is a severe debt hangover. Many people have stepped into the new year with more bills racked up than expected. A MagnifyMoney report shows that 44% of all Christmas shoppers in the U.S have accumulated debt this past season.
The average shopper in the U.S accrued at least $1,054 of holiday debt. This comes as no surprise though. Debt comes by very quickly in Christmas season. There are always last minute gifts to be purchased. There are also fewer working hours available resulting in fewer income earnings over the season.
All debt is not created equal
The MagnifyMoney survey also shows that only a half of these shoppers are confident about paying off this debt by March. Another 29% need at least five months to get out of holiday debt.
The major problem is that the majority of this debt is credit card debt. Credit card debt has a very high annual percentage rate (APR) ranging from 10-20%. Shoppers without not so good credit scores usually turn to quick loans, which are known as the most costly debt options ever.
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Even worse is that when there are late payments, accounts are often subjected to even higher APRs and penalties. Your holiday debt may turn into a monster that damages your credit scores and puts your financial stability into jeopardy.
Millennials lead in holiday debt acquisition
More millennials got into holiday debt than any other age group at a rate of 14.3%. Millennials are very “hands off” when it comes to budgeting and saving. All they have is a general idea of how much money trickles into their coffers and how much they take out.
So when an emergency debt comes by, most of them tend to dip their hands into their savings. This leaves them wide open when an unexpected medical or emergency arises.
A debt-ridden nation
Holiday debts asides, Experian says that the average American owes at least $6,354 in credit card debt. And that is not all. Most of them also owe an average of $34,144 in student loans and $24,700 in other loans.
A Pew Reseach study shows that half of all households spend more than the breadwinner earns in a month. If you are in a tight financial spot this new year, know that you are not alone. This new year may just be the fresh start you need to reboot your finances and get out of debt.
Read on for tips that will give you a debt-free holiday season at this year’s end. These suggestions will also set you on the road to financial freedom.
Financial tips that will reboot your finances in 2019
- Living by the 50/30/20 budget
A budget is a key to economic freedom because it can help you spend your money wisely. According to NerdWallet, a 50/30/20 budget will help you get off debt faster. A 50% of your income should pay off your day to day living expenses. A 30% of your income, on the other hand, should cater for your wants. Slot in your entertainment or vacation costs here. The remaining 20% should go to savings and debt repayments.
If you are already too deep down the debt hole, you might want to use a chunk of that 30% for extra debt repayments. This step will save you from high-interest rates and get you off debt faster.
- Find out how much you owe
Too much debt can be scary to look in the eye, so most people tend to bury their heads in the sand about it. Paying off debt blindly means that you’ll keep making minimum payments and getting higher penalties.
Bite the bullet, call you debtors and get to know how much you owe. Ask about your APRs and minimum repayment requirements. Once you have owned to your debt, make a debt tracker or a simple chart that has all your debt outlined.
Loans with the highest interest rates should be done away with first. This is where you can send the 30% of your budget to. To keep up with your payments, automate them.
- Get lower interest rates for your cards
Once you have found out just how much you owe and your interest rates, it is time to call your bank. You can save thousands of dollars by simply calling a truce and asking for negotiations over high-interest credit card rates.
If you have been paying your other bills on time, your bank might be inclined to lower your rates. You can, for example, mention that their competitors offer zero interest rates as an introductory offer. The less you pay on high-interest rates, the more you have left over to throw at your debts.
- Initiate a balance transfer
If your bank does not give you the time of day over lower interest rates, your next good option may be a balance transfer. A balance transfer can give you a juicy 0% APR rate for a few months. This option should give you more time to pay off your debts.
A balance transfer is effected by transferring your balance from your credit cards to one new card with lower rates. If you have a good credit score, a balance transfer can help you pay back debts faster, since you’ll have more money left over.
- Get a side hustle
Skills and hobbies can bring some extra income that can help offset that debt. How about designing web pages in your free time or renting out an Airbnb room? These side jobs may be exhausting but are manageable for short term stints.
The extra dollars will ensure that your budget stays reasonable; that you do not have to cut it too much. If it gets exhausting like it’s bound to be, watching those balances go down on your debt tracker should keep you motivated.
Other unusual sources of income like ‘found money’ should also be focused on debt repayment. Think that unexpected tax refund or bonus at work. Your annual raise could be your ticket to financial freedom.
- Sell stuff you do not need
Take stock of everything you own. Do you have things you hardly use that could fetch you some cash? Sell all that and use the money to pay off your debt. Plan a garage sale if your neighborhood allows it and unload those items off for a profit. You can also sell your belongings on social media or through a consignment shop.
- Evaluate your spending habits
Getting your family members an expensive Rolex each for Christmas is very generous but very deadly for your finances. Check your spending habits. Do you come up short every other month? Begin to purchase the absolute essentials only.
Quit expensive habits like eating out, alcohol or smoking. With the money saved, you can chase down your financial long-term goals. Your daily espresso could be siphoning away cash better utilized elsewhere. Replace it with a less expensive homemade cuppa of joe.
Living in debt can rob you of peace of mind and keep you in a system designed to drown you in it. Getting out of debt will not only give you freedom but skills and knowledge that will drive you to abundance. Stay focused on getting out of the debt cycle, and soon enough you will have the life you truly want.