Santa was not so kind to your friends and relatives this year, so you felt the need to fill the gap. You overspent on holiday gifts, and now you are stuck with a significant amount of holiday debt. Gratitude from gift recipients is a great feeling, but gratitude is not going to pay off your MasterCard bill. If it's any comfort, you're not alone; according to one report, Americans racked up an average of $1,054 in debt this holiday season.

What do you do? Start with the classic bit of advice – “if you are in a hole, stop digging.” Recognize that you overspent, and freeze your spending until you can take the following steps.

How to Reduce Holiday Debt

  1. Assess the Situation and Rebalance the Budget – Face up to your debt and total up the damage. Rebalance your budget to account for this new debt, and look for any budgeted spending that you can temporarily drop. You will need to eat out less often and delay other discretionary spending until the debt is reduced. (Of course, if you do not have a budget, the first step is to make one.)

    However, you do not want to delay or endanger any essential payments such as your mortgage. Missing major payments will just compound your problems.

  2. Prioritize Debt – How is the debt distributed? Generally, the best thing to do is to make the largest payment you can against the debt with the highest interest rate and make minimum payments on the rest. Continue in that pattern until all the debt has been discharged. You will minimize the amount of accrued interest and pay your debts off earlier.
  3. Consolidation – If the debt is spread over multiple sources, you may want to consider consolidating them into one credit card. Look into transferring balances onto cards with lower interest rates. Check out our list of balance transfer credit card offers.

  4. Look For Alternative Income – Explore other means of temporary income to apply to your debt. See if there are any overtime opportunities or extra projects at your workplace that can increase your income. Holding a garage sale can bring in debt-reducing cash and help you to clean and organize at the same time. If circumstances allow, consider taking on temporary odd jobs until your debt is under control.

    If any of those gifts were for yourself and are unused, you should consider returning them. Buy them for yourself later as a reward, once you have paid off your debt and saved enough extra money to cover the cost – if you still think it is worth it.

    One thing you do not want to do is take out any sort of payday or title loan to pay off the debt. You will just be trading high-interest debt for really high-interest debt.

  5. Schedule Your Debt Payments – Set specific milestones for debt reduction. Start with the first repayment; it will help to build positive momentum and a sense of accomplishment. That momentum can give you the willpower you need to continue to chip away at your debt, as well as the motivation and the means to keep it from happening again next year.

Be honest and open about your overspending. (You set the bar awful high this year and it may take you until next Christmas to lower expectations for your gift recipients.) With some planning and consideration, you can find gifts that are even more meaningful at better prices.

In the end, perhaps something positive will come out of your debt binge. Treat it like any other unhealthy binge – deal with the aftermath, learn from it, and take steps to keep it from happening again.

If you want more credit, check out our list of credit card offers.


Photo ©iStockphoto.com/asiseeit

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