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4th Quarter 2017

Managing Seasonal Debt

It’s easy to fall into debt during the holidays — after spending money to buy gifts, host holiday parties, and travel to see family and friends. Rather than starting the year in debt that lasts for months, take these steps to help pay off your debt and prepare for next year’s expenses.

Make paying off high-interest debt a top financial priority so you can retire it as soon as possible. Don’t just make the minimum payment on your credit card; pay as much as you can. If you owe $2,500 on a credit card with an 18 percent interest rate and pay just $100 per month, it will take you two years and seven months to pay off the balance, and you will have to pay $657 in interest. If you boost your payments to $300 per month, you’ll pay off the debt in eight months and pay just $191 in interest. Use our debt repayment calculator at www.icmarc.org/managedebt to see how long it will take to pay off your loans and how much interest you’ll pay at different monthly payment levels. One strategy for wiping out high-interest debt has lost some luster, though, now that the recent tax overhaul has eliminated the deductibility of interest on home-equity loans and lines of credit.

Look for ways to cut back on your daily expenses until you pay off the credit-card debt, such as bringing lunch to work, cutting back on entertainment, taking on some extra hours at work, or finding other ways to earn extra money. Focus on how much money you’ll save in interest charges as motivation to cut back until you pay off the debt.

Start saving for special goals in advance. Now is the perfect time to start saving for your summer vacation, which is also a common cause of long-lasting debt. Set aside a little money every month ahead of time rather than having to pay it all — plus expensive interest — afterwards. When you reach your goal for vacation savings, then start saving extra money for next year’s holiday expenses.

Give yourself a dollar limit for your vacation and holiday expenses, and then figure out how to adjust your plans to fit into your budget and how to save in advance to cover the bills. You may need to cut back on your vacation by a day or two to manage costs, for example, or travel to a less-expensive airport or choose a less-expensive time to travel.

Set a holiday budget for next year and start planning in advance. Decide how much you can spend, and then make a list of who you plan to give gifts to and how much you can spend for each person. Think about gifts a few months in advance so you can take advantage of sales and free-shipping offers. That can save you money and reduce your holiday stress, too.

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