Dealing With Holiday Debt

The holidays have never exactly been easy on the wallet, but the past few years have been especially rough. If you're worried that you might have overspent a bit last year, at least you can rest easy knowing that pretty much everyone else did, too. In fact, 25% of Americans still haven't fully paid off their holiday bills from 2022!

Not only do most people have more debt than before due to inflation, but carrying that debt is a lot harder when interest rates are through the roof. That's why it's so important to get holiday spending under control. The steps to do it aren’t always easy, but they’re also not complicated. Here are just a few tips to keep in mind that will set you up for success:

1. Set up Your Holiday Budget Early.

The only way to avoid going into debt in December is to save money in January through November. Figure out what you're going to spend, and not just on presents. Don't forget to account for things like charitable giving, time off work, and replacing those Christmas lights that somehow got destroyed while they were sitting in a box all year. 

You might be thinking "Who knows how much everything is going to cost a year from now, though?" and that's a very valid question. Remember, your budget represents what you can afford to spend. Until wages catch up with inflation a bit more, just because everything is going to be more expensive next year doesn't mean you'll have more to spend! You're just going to have to use that holiday budget a little more creatively. On that note…

2. Stretch That Budget as Far as You Can.

We don't have to tell you that the past few years have been incredibly difficult, financially. We can almost guarantee you that your friends, relatives, and coworkers are feeling the pinch as well. That means that if you need to cut back on the presents this year, you’ll be in good company. Don’t worry, cutting costs doesn’t mean you’ll have to start being a Scrooge. 

To the extent that you have the time and energy to spare, by all means, make some homemade gifts. They're inexpensive, and many people consider them more thoughtful than something like a gift card or a Something-Of-The-Month Club membership. But if you don't really have the ability to make a bunch of your own gifts this year, it's also perfectly okay to slim down your gift-giving list. Do whatever you have to do to keep your holiday expenses in line with the budget you set, because the good feelings you'll get from showering people with gifts isn't worth going into debt for. 

3. Consolidate Your Debt At a Lower Interest Rate.

The previous tips will help you avoid running up your debt, but what about the debt you already have? Short of winning the lottery, one of the best ways to reduce your monthly expenses is to tap the equity in your home, especially if the existing debt is credit card debt. The math is simple: As of December 2023, the average credit card interest rate is 27%. If the last time you looked into consolidating your debt was when credit card interest rates were in the single digits, you may want to look into it again! The average interest rate on a cash-out refinance or home equity loan as of December 2023 is only around 9%.  

Mortgage Center offers refinancing and home equity loans that both offer a low, fixed interest rate. If you're an existing homeowner, they may be a good way to reduce your monthly expenses and help you avoid breaking out the credit card next year!