Recovering from the Holidays: A New Year with No Debt

Recovering from the Holidays
A New Year with No Debt: Make 2022 the year you achieve financial freedom!
Welcome to the first normal New Year’s in a very long time! But let’s not forget something important: Before the pandemic, January was a stressful month – especially when the December credit card statements started arriving. Unfortunately, many don’t pay off their holiday bills until the summertime. Some don’t even pay them off when the holidays roll around again. Today, we’re going to show you how not to do that.
Average holiday debt per person…
Even though we didn’t go anywhere during the 2020 holiday season, we still ran up more holiday debt than we did the year before the pandemic. So, it doesn’t really matter what happens in the world around us, we found that one constant is: We overspend on gifts, travel, food, and drink.
2015 – $986
In fact, 2015 was the last time our holiday debt was under $1,000 per person. Obviously, we can’t keep going like this. Eventually, we need to change our ways. Or we’re doomed to a lifetime of debt.
28%
OK, here’s the last scary stat I’ll hit you with, and it’s really troubling: When nearly 3 in 10 Americans start their holiday shopping each year, they still haven’t paid off their holiday debts from the year before!
2022 smart financial goals
OK, after all those terrible statistics, it’s all good news from now on. Let’s start with this simple fact: Most Americans don’t get into holiday debt because they’re irresponsible or frivolous. They go into debt for an easily fixable reason: They just didn’t make a plan. Let’s talk about that now, because making a plan isn’t hard to do.
Budgeting is the best New Year’s resolution
Here’s the first rule of personal finance: You can’t save money if you don’t know how much you’re spending. If you financially  survived the pandemic without a monthly budget, you definitely need one now. That’s because spending is sure to increase now that we’re almost back to normal. Best of all, creating a budget isn’t as difficult, or even as boring, as you think it is. Why? Because technology can do a lot of the work for you.
How to budget without getting bored
While you can certainly go old-school and create a budget by putting pen to paper, it’s so much easier if you use secure online tools that require just a few keystrokes. There are websites, apps, and programs that handle the drudgery of budgeting for you. Many are free, and the ones that charge are only a few bucks. Here’s how they work.
Cutting-edge way to cut expenses…
One of the most popular is called Mint, which is free. Others, like YNAB and Mvelopes, charge a few bucks a month because they offer more options. Either way, you just type in your income and expenses, and these programs do the math for you. You can even project your savings if you eat one less takeout dinner, or if you refinance your mortgage. The software does the heavy lifting for you.
If that’s a little too techy for you, there’s a middle step. Websites like Tiller let you download customized spreadsheets that stay on your computer, and you can easily personalize them. Also, many banks and credit unions offer similar programs on their websites for their customers, which are easy to use because you’re already familiar with those websites. Each of these options has its pros and cons, but they all work. So, it’s really up to you. Whatever makes you feel the most comfortable.
Emergency budget
Now that you understand the value of a regular ol’ budget, let’s take the next step and talk about emergency budgets. What’s an emergency budget? It’s a stripped-down monthly budget. We’re talking about cutting out every expense that isn’t needed for your basic survival. If you get laid off or lose your income for more than a little while, you need to know – in advance – how much it will cost you just to survive those difficult times. Without an emergency budget, you’re flying blind.
Survival expenses
In an emergency budget, you focus only on the expenses that matter most. First, there are your basic needs: food, water, and shelter.  Second, there are bills you just gotta pay. Mortgage or rent, other loans, utilities, water. Although we’ll talk in a moment about how to delay or reduce some of those. Then there are support functions that you can’t live without. For example, if your car breaks down, you need to fix it – or you can’t get to work and make enough money to survive. Same thing for childcare. Finally, there are medical expenses. This includes prescriptions and any medical care you’re under – because nothing else matters if you’re so sick you can’t work. Or enjoy your life.
Cut out ALL luxuries
Once you prioritize the four broad categories we just mentioned, time to cut back to the barest of bones. Since we’re talking about keeping only the necessities, get rid of everything else. That includes pausing or even canceling monthly subscriptions like cable or satellite TV. That’s right – no Netflix. And you’ll scale back your phone plans to the cheapest level available. Ditto with your wifi. If you can get a cheaper rate for a slower connection, you’ll build that into your emergency budget. Every penny counts here.
An emergency doesn’t mean monotony
Before we go any further, let’s clear the air: While emergency budgets aren’t fun, they don’t have to be miserable, either. Just because you’ve cut out your costliest entertainment options doesn’t mean you can’t enjoy yourself. You and your family can enjoy board games and even go outside and hike, bike, or walk. Your local library has both online and socially distant in-person options to keep you both entertained and educated. Bottom line here: Helping your bottom line doesn’t mean living like a monk.
Emergency fund
Experts recommend you save 3-6 months of bills and other budgeted expenses. This allows you to weather a period of unemployment or cut hours at work without relying on credit cards. Of course, who has money just lying around? One easy way to start an emergency fund is to let someone else do it for you. If your employer pays you via direct deposit – and 82 percent of Americans get paid that way – then you can ask your company to split your direct deposit. That’s right, most employers will let you send some money to one bank account, and some money to another. So, you can shunt some of your paycheck directly into a separate emergency savings account. You won’t even miss the money, because you’ll never see it in your primary account.
How all of this emergency stuff helps you now
You’re probably wondering why we’ve spent so much time with this emergency stuff. Well, when you’re trying to go into the new year with a better financial plan, thinking about the worst that 2022 could throw at you will keep you prepared for anything. It’s also true that taking control of your finances can make paying off holiday debt much less daunting. In fact, let’s talk about that right now.
Holiday debt doesn’t have to drag you down
If you were one of those 28 percent of Americans who don’t pay off their holiday debt before the new holiday season rolls around, you need to break that cycle. But getting out of debt is much harder than getting into it. So, we recommend getting some free professional help.
Credit counseling will improve your 2022
If you have steep and stubborn holiday bills, that’s a symptom of a bigger problem. So, the first thing you need a debt diagnosis. You don’t go to a doctor, though. Instead, you call a certified credit counselor. These experts work at nonprofit credit counseling agencies. While they’re on the phone with you, a counselor will give you a free debt analysis. They’ll review every dollar you spend and every dollar you earn. From there, they can give you a menu of debt-busting options.
Learn your debt-busting options
One of the most powerful weapons in a debt counselor’s arsenal is called a Debt Management Program, or DMP for short. It might be able to cut your monthly payments by up to 30 or even 50 percent. How can they do that? Simple. Your credit counselor works directly with your credit card companies. A DMP has several wonderful advantages over trying to get out of debt yourself.
DMP
Not only do you save money on interest rates, a DMP also freezes late fees. Even better, you only make one payment a month for all the credit cards that are in the program. You make that payment directly to the credit counseling agency, who pays your creditors on time. No more forgetting to write that check for that one credit card, then getting hit with huge late fees.
DMP: How to learn more
Obviously, there’s much more I could say about DMPs, but your best bet is to read more on your own time and at your own speed. Since I’m biased, I suggest checking out ConsolidatedCredit.org for the simplest plain-English explanation of the pros or cons. Or you can call a nonprofit credit counseling agency and not only receive that free debt analysis, but also ask any questions you have about DMPs or anything else financial.
3 other ways to ease your post-holiday debt
Of course, creating budgets and calling credit counselors is a wonderful way to get out of debt and stay out. But there are three other tactics you can use right now to make a dent in your holiday debt. Let’s go from easiest to hardest.
1. Sweet-talk your credit card companies
If you’ve had your credit cards for along time (we’re talking years) and you’ve made your payments mostly on time, then you can actually ask for a break. You can call the phone number on the back of your card and request a slightly lower interest rate. There’s no guarantee you’ll get it, but credit cards are so competitive right now, they often don’t want to lose a good customer over a fraction of a percent. And you can easily move your due date to avoid late fees.
 
2. Get a balance transfer credit card
A certain kind of credit card can actually help you get out of debt instead of deeper into it. It’s called a balance transfer card. These cards offer you a low interest rate, and in many cases, no interest rate at all. With one of these cards, more of your money goes to paying down your balances instead of lining the pockets of your credit card issuer. Sound too good to be true? They’re not, but there are some drawbacks you need to watch out for.

2.Get a balance transfer credit card BUT BE CAREFUL
All balance transfer cards have an expiration date, usually at the end of 18 months – but sometimes for only six months. If you use that time to pay off your balance, you come out way ahead. Unfortunately, research has shown that most Americans who get a balance transfer card don’t pay off their entire balance. Guess what happens then? The interest rate jumps – sometimes to a higher rate than you had on your original cards! So, to really take advantage of balance transfer cards, you need to be disciplined and stick to a deadline.
3. Debt-consolidation loan
A debt consolidation loan is simply a personal loan you use to pay off all your credit card bills with steep interest rates. The concept is the same as a balance transfer card: You’re paying off the high interest rates with a lower one. In this case, you might be able to get a personal loan of between 36 and 60 months from your bank or credit union at 6 percent, then use the money to pay off your credit cards that are charging you 20 percent. Then you simply make one monthly payment on the personal loan. Usually, you get out of debt faster AND make a smaller monthly payment, which is the definition of a win-win.

3. Debt-consolidation loan BUT BE WARNED!
But there is, of course, a catch. If you get a debt consolidation loan, you’re looking at 3-5 years to pay it all off. And that’s if you can even get a loan. If you have too much debt, it’s a classic Catch 22. You need the loan to pay off debts, but you have so much debt, no bank or credit union will give you the loan!
THANK YOU!
We’ve touched on a lot of topics today, and I know you might have questions about one or even all of them. We’re here to help, so give us a call anytime. We can explain the details on each of these tactics and share other tips we didn’t have time to get to. I just want to leave you with one last thing: You don’t have to end 2022 the way you started it. You can be on the path to financial freedom before the holidays roll around again. And you have professionals willing to help you. So have a very happy new year! Please should you have any questions, I urge you to email us. [email protected]. Or please give us a call at 1-800-210-3481. Keep in mind, Consolidated Credit may be able to help you get out of debt, faster than you could on your own. We are here to assist you with that or anything else financial. Thank you so much for joining us for today’s webinar and happy New Year one and all.