How to make sure Christmas debt doesn’t become a year-long hangover

Most of us spend a little more than we have from time to time and Christmas can be the moment we reach for our credit cards or sign up for Buy Now Pay Later deals. In most cases, once the festivities are over, it only takes a couple of frugal months to pay off those extra costs and get finances back on track. But sometimes debt can spiral out of control, so here are some tips to how to avoid a Christmas hangover that lasts through 2023.

Check your debt

It’s important to look at your finances square on, because the quicker you spot any issues the quicker you can deal with them. And tackling debt at an early stage usually means you don’t require formal “debt help”.

If you’ve reached a point where you struggling to pay for the basics, like your mortgage or rent, or you’re finding you have to put some of the monthly food shopping on credit that’s a good indicator something’s gone awry with your financial situation. 

If you’re slipping further and further into the red every month, you’re probably in what’s called a debt spiral and if you don’t act you might find yourself heading towards a debt crisis.

Take a look at your take home pay and if your debt (not including your mortgage) is bigger than that amount – it’s not time to panic but it is time to do something about it. The fact you are reading this means you’re aware of the problem and ready to do something about it. It’s far too easy to try and ignore what’s going on but that’s only going to make the situation worse and cause more than a few sleepless nights. There’s is plenty of help out there if you ask for it.

Shop around for a cheaper deal

It might seem obvious but the aim with any debt is to pay it off as quickly as possible while paying the lowest amount of interest that you can. The first thing to do is work out what debt you have, who it’s with and how much interest you’re paying.

A next good step is to check your credit score. There are lots of places you can do this for free and you might you find you can already do it as part of your online banking.  You want to make sure your chance of getting new credit at the best rates isn’t being hampered by incorrect information, and if your score’s not looking too hot it might not be the right time to be making applications that could be turned down.  If that’s the case and you can wait and make some changes to improve your score it will help you in the long run.

Normally the first thing you’d look at is your mortgage payment, but interest rate rises have made cheaper deals less likely, especially if you’re coming off a two-year deal that you locked in when rates were uber low. It might be possible to extend the term of your mortgage to bring payments down, or even switch to an interest only mortgage – at least for the short term (but remember you will need to think about how you’ll pay off the capital at the end of the deal).

Can you move your credit card debt to a 0% deal? If you use this properly it can be a great option and it’s possible to get long term balance transfers locked in at that rate. If you use the shuffle technique carefully, to move between different 0% deals, you can cut your interest costs allowing you to hammer away at your debt. Try not to just pay the monthly minimum or even add to the debt because then you’ll be right back where you started.

If you do have any savings put aside, even with the improving interest rate situation, you’re unlikely to be getting more in interest on your savings than you are paying out in interest on your debt. But practically and psychologically having a savings cushion can be important for some people. SO just weigh up what the right balance is for you.

What are the best methods to repay debt?

There are two main ideas when it comes to repaying your debt: snowball and avalanche. Both require you to list out the debt you have, who it is with and how much it is. The snowball method is where you list your debt by the smallest to the largest. You tackle that smallest bit of debt first and then gradually work your way up to the meatier bits of debt. The feel-good vibes of paying off that smallest bit of debt first will spur you on to tackle the rest.

The avalanche method is where you repay the highest interest debt first, regardless of how big it is, you then move on to the next highest, and so on, until you’ve cleared the debt.

This is the most financially prudent way, as you’re ridding yourself of the highest interest debt first, freeing up more money to funnel into the other debt. But it can feel like more of an uphill slog.

Whatever route you take, the golden rule is that you should always meet the minimum payments on all your debt, and then use any remaining money to pay more towards your other debt.

I need more help, where should I go?

Lots of people will feel overwhelmed with their debt and don’t feel like they can handle it on their own. Don’t panic, there is lots of help out there. Crucially, there is lots of help for free. So don’t be suckered into paying fees for debt advice or debt repayment plans. Citizens Advice is a good first port of call, as they can help you access any government support you’re not already getting, as well as give you debt advice. Or you can try specific debt charities, such as StepChange or National Debt Helpline, who will give you advice and support. If you’re feeling a bit nervous just read some of the testimonials from people who have accessed their services and it will hopefully reassure you.