How to dig out of your holiday debt

It’s done.

You probably didn’t have a budget, but even if you did, you ignored it, because the holidays inspire generosity.

But in a few weeks, after the holiday decorations have been taken down and packed away, you’ll get your credit-card bills. You’ll open the statements and want to faint. The truth is there in print. You took on more debt than you planned. Now what?

Americans pay dearly for their love of credit. Consumers were on track to pay banks more than $100 billion in credit-card interest and fees in 2018, according to MagnifyMoney, a LendingTree brand, which analyzed FDIC data earlier this year.

Here’s how to handle your debt after the holidays.

Don’t beat yourself up. You can’t undo the damage, so there’s no use starting off your debt-payoff plan with a heavy heart. But don’t ignore the behaviors that got you into this financial mess.

Cut the cord to your cards. If you have an outstanding balance on any of your credit cards, you have to stop using plastic. Period.

A report by the American Bankers Association found that 43.8 percent of credit-card account-holders revolve a balance from month to month.

Until every dollar is paid off on every single card you carry, you can’t use credit. And yes, this includes cards on which you don’t carry a balance. Why the latter?

It’s hard to dig yourself out of debt if you’re still spending as if there isn’t a problem. It makes no sense to me that if you have $5,000 in debt on one card, you’re telling yourself it’s OK to use another credit card because you pay that one in full each month. All available cash not being used for your necessary household expenses needs to be directed to getting out of debt on the cards where there are balances.

Pick the right debt-payoff plan. There is quite a bit of debate about which method is best to pay off debt.

You could list all your debts and concentrate first on paying off the card with the highest rate. Any extra funds are directed to just that one debt, while you make minimum payments on all the other debts. With this method, the math is in your favor. Your focus here is to reduce the amount of interest you pay, and thus save more money.

Or you could spread any extra cash among all the debts.

Another approach — the one that I recommend — involves listing your debts and starting with the one with the lowest balance. I call this the “debt dash.” Other experts refer to it as the “snowball” or “avalanche” plan. The reasoning behind this method is to give debtors a quick-payoff victory. Extra principal payments are put on the debt with the lowest balance while making the minimum payment on the other debts.

One of the reasons people get stalled when paying off a long list of debts is that they see little progress. The extra money they have every month to attack the debt doesn’t seem to be making a significant dent. So they quit making the extra effort.

Getting out of debt is as much a mind game as it is a mathematical endeavor. Logically, you want to pay off your debt in a way that also reduces the amount of interest you pay. However, if logic were all it took, people wouldn’t be in debt in the first place. Who, with math in mind, would sign up for a credit card with a 29 percent interest rate and then proceed to run up charges they couldn’t pay off every month for dinners, movies and clothes?

Research reported in the Harvard Business Review in 2016 confirmed what I’ve found to be true after years of working with individuals who are trying to dig out of credit-card debt.

“Focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress — and therefore their motivation to continue paying down their debts,” the research found.

Find a debt-reduction partner. Just like misery loves company, debtors do better with accountability partners. Team up with someone else trying to get out of debt, or ask the frugal person in your friend or family circle to help hold you to your plan. Give the person permission to check on your progress and fuss when you’re getting off track.

If you want to become debt-free in 2019, make this your mantra: Live by overspending, die in debt.

— Washington Post Writers Group