Your four-week plan to tackle Christmas debt

POSTED: 17th December 2014
IN: Personal Guides

Pay back your Christmas borrowing with this step-by-step guide.

undefinedWith food and gifts to buy, people to visit and parties to go to, Christmas can be an expensive time.

Many consumers find themselves relying on credit during the festive season. This is not necessarily a bad thing, as long as you are able to repay it promptly.

Following this step-by-step guide will help you take a structured approach to paying off your borrowing and get your finances back on track for the new year, all within four weeks.

Step 1: Add up and prioritise debts

During the first week, it is essential to take stock of your situation and make sure you are absolutely clear about how much you owe. This will give you an idea of the impact debt repayments are having on your monthly finances.

According to financial website This is Money, it is time to take some serious steps if your repayments are wiping out more than 20 per cent of your net monthly income.

When arranging the money you have available to pay off your borrowing, prioritise the most expensive debts – i.e., those with the highest interest rates – so these are eliminated as soon as possible.

It is also crucial to stick to payment deadlines to avoid exacerbating your situation with penalty fees.

Step 2: Set a clear budget

The best way to develop a clear idea of how much money you have available to pay off debt is to create a thorough budget.

When drawing up your budget, maintain a realistic outlook on the money you have coming in and how much you will need to spend on essentials such as food, bills and travel.

Make cutbacks where you can, but don't underestimate how much the basics will cost you on a weekly and monthly basis. If you find that the amount you spend on necessities is higher than you first anticipated, alter your budget to reflect this.

As well as giving you a sense of control over your finances, making a budget allows you to come up with a schedule for repaying your debts. If you are able to stick to this schedule and can see that you are making progress in improving your money situation, the sense of achievement and satisfaction will encourage you to see it through to the end.

Step 3: Cut out borrowing and unnecessary spending

Obvious as it may sound, it is absolutely imperative that you do not give in to the temptation of borrowing more money while trying to pay off old debts, regardless of how attractive the latest offers and promotions may seem.

People who fall into this trap could find themselves falling into a dangerous debt spiral of borrowing money to boost their income, which leaves them with the prospect of higher monthly repayments and the temptation to borrow even more.

As well as turning your back on new credit, you should make a concerted effort to improve your money situation by avoiding all unnecessary spending. Cafe lunches, branded goods and unused gym memberships are just a few examples of things you could cut out to make a saving.

Changes like these might feel difficult at first, but it will be worth it once you are clear of the debt you built up over Christmas.

Step 4: Make positive changes

To keep your finances in the healthiest state possible going forward, think about the positive changes you can make to reduce your outgoings and cut out inefficiencies.

If you still have some outstanding amounts on credit cards once you have cleared the majority of your Christmas borrowing, look into transferring the balance to another card or a consolidation loan offering lower interest.

For many shoppers, one of the biggest debt risks is the store card. These products charge particularly high interest rates, so once you have cleared any outstanding balance on the card, remove the temptation by cutting it up.

It is also worth comparing gas, electricity, water and phone providers to see if you can reduce your monthly outgoings by switching.

Researching and going through with changes like these might not seem like a particularly appealing prospect, but it could be the best way to optimise your finances and reduce the risk of debt problems in future.

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