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Holiday Debt: What Not to Do

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If you’re like me, you love to give gifts during the holiday season. Nothing quite compares to the joy on a loved one’s face as they open a surprise present. Unfortunately giving gifts is not cheap, and it can be easy to lose track of your budget and slip into debt. If you’ve found yourself in this situation, here are some things you shouldn’t do when trying to eliminate holiday debt.



One of the hardest aspects of personal finance is being flexible enough to change your spending habits quickly. On one hand, it is very easy to spend more as you make more money or find yourself with a budget surplus, but going the other way is difficult. Once you’ve become used to a certain style of living or have lived with a spending habit for many years, adjusting to spending less is not easy.

If you’re trying to eliminate your holiday debt quickly, you’ll likely have to modify your spending habits for a period. Of course, if you’re already spending as little as you can, this tip may not be for you. There are plenty of people who are spending as little as they possibly can but still want to give substantial gifts during the holidays. Trying to spend less after the holidays is not feasible.



It can be easy to put together an ambitious budget that forecasts an extremely quick debt payoff. This strategy is counterproductive! Ambitious budgets seem like a good approach, but they can actually cause more damage than good. Here is why. You start out the month with an ambitious budget, saying to yourself that you’ll be better. As you start to slip, you become depressed that you have “failed” to reach your goal and abandon the budget. Not only are you now in a hard spot mentally, but it is also unlikely you’ll budget again in the near future.

You can avoid this trap by creating a budget that is realistic. Start with goals that seem way too easy, then enjoy the small win when you succeed. Gradually build on that success until you’ve discovered goals that match your actual financials.



While it is possible to use credit cards and lines of credit responsibly, many who keep spending on credit after falling into debt can run into a vicious debt cycle. If you’re able, stop spending on credit until you’ve paid off your balances. If you plan on using credit in the future for its various benefits, create a payment plan before you spend so you can avoid creating debt again.


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Most people try to pay off multiple debts all at once. Although this may sound counterintuitive, it is a better strategy to pay off your high-interest debt first. Let’s say you have a student loan with a 7% annual percentage yield (APY), a mortgage with a 3% APY, a credit card with a 15% APY, and a credit card with a 25% APY. If you pay as much as you can towards each of these accounts, you will find yourself paying more proportionally in interest to the credit card with 25% APY. Instead, focus on paying off that credit card while continuing to pay the minimum amounts required by your other lines of credit.



Closing credit accounts feels amazing, I’ll be the first to admit. This can be especially true if you’ve struggled to pay off a balance. If you’re a little overzealous in closing accounts, it may be worth remembering that your credit score is not only based on how much you owe but how much credit you have available. So, pay off your accounts, but don’t necessarily close them. Credit bureaus suggest individuals have five or more accounts in order to maximize their scores.



You might feel the urge to pause contributions to your retirement account(s) in order to pay off debt, but we do not recommend it. Retirement accounts have decades of potential returns, so your small contributions now can end up making a real impact. For example, the S&P 500 grew 371.02% from the beginning of 2000 to the beginning of 2021. Note that past performance does not predict future returns. Plus, it can be difficult to start contributing to your retirement once you stop! That little extra cash can feel good.



I have found myself in debt multiple times in my life, and each time I find myself in that place, I struggle with denial. It can be easy to continue life as normal without opening your budget or your digital banking app and seeing your real balances. I always imagine I’m spending less than I am or imagine I have more than I do. Working past that mental roadblock is extremely hard, and if you have already passed it, give yourself a pat on the back.



This might seem like an odd recommendation given the topic of this blog, but it has real relevance. Social media gives us a tailored, optimistic view of the lives of others. It is a reality distortion machine and has been proven to give people an unhealthy view of themselves in the world. If you check social media obsessively, you may feel like you’re worse off in several different ways compared to reality. Then paid advertising or collaborations with influencers can sneak into your mind, making you think (sometimes without you realizing it) that you need a product to feel good, be good, etc…. If this is you, take a break from social media for a while!

Holiday debt can be especially hard to deal with because it comes from a place of goodness and cheer. Like all debt, you can work to pay it off and hopefully come away stronger than you were, to begin with.

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About Oliver Ames

Oliver is VSECU's social media strategist and spends most of his day engaging with members through our Facebook, LinkedIn, Twitter, and Instagram profiles. He has a background in science education, non-profit fundraising, business communication, media production, and membership-based organizations. When not at work, Oliver spends much of his time with his wife and son at their home in Montpelier.
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