It’s mid-January and Christmas feels a long time ago. A distant memory, of parties, presents, food and booze. Perhaps it was the booze that makes the memories seem so distant…
And whilst a great time was generally had by all, the hangover you wake up with in January is not so fun. I’m talking about the debt hangover, of course.
Did you know a third of us will have accrued debt over Christmas?
We have, on average, £740 of post-Christmas debt and £323 on credit, with Londoners putting an average of £955 on credit according to MoneySuperMarket.
It can take around 7 months to pay this Christmas debt off, which is about the time you start thinking about next Christmas…
So, if this is you and right now you’ve got your head in your hands, know that you aren’t alone. Sorry, you aren’t being unique here. There’s no point in giving yourself a hard time over it – just accept you have some post-Christmas flab to get rid of and plan to start doing it now.
I’ve listed some steps below that you can follow to take control of that Christmas debt get a plan in place.
1. Work out what you owe
This one might take a deep breath, but it’s an essential step. Grab a coffee, sit down and go through all your recent bank statements and credit card bills and anything else credit related. Don’t forget friends or family you might have borrowed money from over the Christmas period too.
If you get your monthly statements through the post and they haven’t arrived yet, you can check your accounts online or, just give the lender a call to find out what you owe. It’s important to get the most recent balances otherwise you won’t have a true picture of where you’re at.
List out all the individual amounts that you owe and tally it up. Be brave. I created a free debt overview document that you can use as a template if you want to – just download it to get started.
The tallied-up amount might be a shock but, well done – you now know what you’re dealing with. Remember it’s just a number and you are making a solid plan to get that number to zero.
2. Work out your cash flow
If you’re not sure what comes in and out each month, it’s time to write it down. Knowing what comes in and out each month will avoid you spending more than you earn. Regular overspending just leads to more debt which unless managed, can easily spiral out of control. Get the figures right, and there should be a regular under-spend, which means more money in your pocket or perhaps more savings for the future!
Now this one isn’t something you complete over a coffee. I suggest allowing a morning (being naturally more alert in the mornings will help here!).
List all your incomings (wages, benefits, pensions etc) and all of your outgoings (everything from your mortgage or rent right down to a pack of cigs or a magazine purchase). I recommend you log into your internet banking account and export your statements as Excel files. Most banks have this feature. You’ve then got a complete list of your actual expenses, including all the little debit card purchases, rather than just the big regular utility bills. Remember annual expenses such as car insurance too – just take the total and divide it by 12 to get your monthly budget figure.
Then with the two figures in front of you, you can see if you spend more than you earn or spend less than you earn.
I’ve listed a whole bunch of incomings and outgoings that should help get you started, on my free cash flow worksheet. Save it, keep it, and reuse it whenever you need to.
3. If you’ve got an overspend…you need to cut your spending
If you’ve got an overspend, you’re going to get that figure inside your earning amount. Your outgoings have to be less than your income. You won’t be able to pay off Christmas if you continue to overspend each month.
The easiest way to do this is to find ways of paying less for the things you already pay for. Look for ways to pay less for your household bills, your phone tariff, childcare, even your supermarket shop. Use price comparison sites to compare the newest deals and see if you can switch suppliers. Cancel any direct debits for services you’re no longer using (old gym membership anyone?). You get the idea. Be frugal.
It’s worth re-budgeting when you’ve been through this step, so you can show any savings you’ve made in the outgoing’s column. Hopefully this will mean you now have an underspend and can use that cash to go towards the Christmas debt.
4. Pay your highest-cost debt off first
This sounds like common sense but quite often you want to pay off the debt with the largest balance first, or your overdraft or the credit card you use most regularly. Find the interest rates for each balance and any other charges and list the debt in order – highest costing at the top.
Hit that one with your surplus underspend money first – whilst making sure you still pay the minimum balance on all accounts. Overpay as much as you can onto that highest costing debt. Once that one is paid off, move onto the next and so on. This is called the debt avalanche, which is different to the debt snowball. Confused? I explain both in this article.
5. Make some extra cash
If you’ve done everything you can in step 3, you still have an overspend and you really can’t get your outgoings down any further, it’s time to make some extra cash.
This one is little tougher as it requires more work, but it’s only for the short term whilst you pay off your debt.
Run through things on your budget list that you don’t really need or can compromise on – can you switch from Sky to Netflix for a while?
Rummage through your drawers and cupboards and sell things that you don’t use anymore on eBay or Facebook Marketplace. You may find selling things from around the house goes quite a way towards paying off your Christmas debt and getting you back on track.
It might also be worth getting a second job, whether it’s bar work or waitressing, local dog walking or freelancing out your day-job skills in the evenings. Everyone has a way to earn more money and remember, this can just be temporary until your Christmas debt is paid off.
Ask for (free) advice
It’s really important to know that you’re not alone in having debt left over from Christmas. If you’ve tried the steps above and are still struggling to make payments, or you’re feeling overwhelmed with it all, just ask for some free advice. National Debtline and StepChange have spoken to millions of people about their debt and a quick chat can really make things seem easier. Give them a call.