So you blew your Holiday budget. It’s the end/first of the year depending on how you look at it. Do you:
- Panic and keep spending
- Pout and become a mixer for the rest of the year
- Take a deep breath and make a plan for the next holiday season.
As rational readers, we should select number 3. Unfortunately, over 50% of Americans will choose one of the first two. Look to your left and then to your right. One of those people is panicking right now about debt. The average U.S. shopper created over $1,000.00 in debt this holiday season. Some shoppers spent over $5,000.00 in the LAST MONTH.
Ready for the worst part? Over half of the survey takers won’t pay their balance off in under three months. 1 in 10 people only make minimum payments on their new debt and will barely cover the interest on their credit cards or loans for the next year. Paying the minimum will take until 2023 to completely pay off the balance. If you do this every year, you see why the average American carries around $8,000.00 in credit card debt constantly.
So why do I tell you all of this? Am I the New Years Grinch? Do I work for BIG CREDIT CARD? Am I a bad storyteller? NO! Ok, maybe I am a bad storyteller, but I tell you all of this so I can swoop in and save the day with a two-step plan to rid yourself of holiday debt once and for all.
TWO STEP PLAN
- Transfer debt to a more reasonable location. 0% interest credit cards with no (or low) balance transfer fees. Think Chase Slate or Barclay Ring Mastercard as both of these cards offer no balance transfer fees. Transfer the debt balance to these cards and divide your debt by the number of months you pay no interest. For example, if you owe $1500 on a credit card, you can transfer this amount to a Chase Slate card and pay no interest for 15 months. At that point, you need to pay $100 a month on your balance for 15 months to avoid paying any interest. If you have credit card debt and feel buried by interest debt, look into this today. We used this exact plan to pay off $15,000.00 in debt three years ago.
- Make an 11 month savings plan to combat your holiday splurge next year. First, look at how much you spent this year and plan on spending 105% of that next year. In a perfect world, you would spend less next year, but this plan assumes you will overspend because most people do. If you spend less next year, all the better.
- Second, divide next year’s spending amount by 11 to create your monthly savings amount.
You spent $1100 last year, so you will spend $1155 next year. $1155 divided by 11=$105.
Your monthly savings needs to be $105
Ok, so what should you do with this money? My recommendation is to open up a Capital One 360 savings account and transfer this monthly amount to this new savings account at the beginning of each month. Don’t get a credit or debit card on your Capital One 360 account. Don’t even get checks. We want this money to sit in this account for 11 months untouched.
When next holiday season comes around, make your budget like you (hopefully) did this year. Go get cash from your Capital One account and put that cash in an envelope. When that cash runs out, you are finished spending. Period.
This plan kills two birds with one stone. First, you pay off any and all current debt. No more interest payments and no more stress. Second, you plan for the next year and years to come to avoid snowballing any debt.
Your goal is to look back at this post at the same time next year with a renewed outlook on your own finances. NO debt. NO stress. Presents purchased. Savings kept intact.
Best part of this plan. If you end up with a surplus next year, reward yourself. Splurge on a neat gift for yourself or a family member. Donate the surplus to charity and get a tax deduction while making a difference. Throw the surplus in a Betterment account and use this for next year’s holiday spending. Having options is key. Rational people are reading this article with no debt and no stress.
Happy New Year! May 2018 be the most rational year yet.
-B&T