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7 Tips for Paying Holiday Debt When You’re Broke (or Want to Keep Your Cash)

Let’s be real: Those holiday bills have rolled in and now you’re wondering how to best pay off holiday debt, right?

Well, to get rid of holiday debt you have numerous options, but they all depend on your cash flow and your credit.

Here’s a look at seven strategies to eliminate holiday debt and get you back on track financially this year – even for those with little or no money.

In my next article, I’ll offer tips on reducing holiday debt regardless of whether you have a good or a poor credit rating.

If you have some extra cash

Before I offer the seven tips for those who are broke, I must first address those who actually do have some “extra” cash.

Let’s say you’ve tallied all your holiday spending and come to realize that you tacked on several hundred dollars – or maybe even $1,000 or more – by shopping a lot during the November and December holidays.

Now’s let’s say you check your bank accounts and you find that you technically do have the money to cover those credit card bills. Except you don’t want to part with the money.

You’d much rather keep that cash sitting in the bank. After all, you never know what emergency might happen down the road right?

Well, you’re right and wrong.

For starters, if you aren’t willing to let go of the money now to pay off your current obligations, in the future if a true emergency does happen you’re probably not going to fork over that cash then either. Which means you’ll simply whip out plastic — again. And that will just get you deeper in debt.

Additionally, not everyone is lucky enough to have a few “extra” bucks lying around in order to reduce holiday debt. But if do you have some unused cash that’s not going to pay other bills, now is the best time to put that money to good use.

Unless you know that a layoff is imminent, or that your monthly expenses are about to increase dramatically in some other way, one of the prime ways to use cash – especially in the beginning of the year – is to slash your debt.

Surprisingly, though, many people will hoard cash – mainly by keeping it in a checking or savings account – despite holiday bills that are yet to be paid.

While it may feel good to have a large cash cushion, especially to cover emergencies, it’s not financially prudent to leave all your cash sitting by idly while you’re racking up interest charges of perhaps 15% to 20% or more from your credit card debt. That’s actually setting you back financially in the long run.

So for those with money, do go ahead and give yourself permission to utilize that cash now. Rest assured in knowing that you’re making a positive, constructive financial move by knocking out that holiday debt in full, if that’s within your capacity.

If not, certainly you should try to eliminate a big chunk of debt by paying a large fraction of your bills – like a third or maybe half of it. If that’s still not comfortable for you, at the very least, double or triple your minimum payments each month – or start by paying a fixed amount (such as $50 or $100) that exceeds your required minimum payment.

One other note: I’m not suggesting that you raid your savings entirely. That wouldn’t be wise. But as I’ve said many times before, when you’re trying to strengthen your finances, you have to do both: save money AND reduce debt. It’s not an either-or proposition. Do both simultaneously for the best financial outcome.

Finding extra cash

Now for those of you who are broke and are thinking: “I don’t have any “extra” money, so this strategy isn’t going to work for me,” … Wait a quick minute before you summarily dismiss this advice.

Are you really sure you don’t have the money — or that you can’t get it fairly quickly?

Before you say you’re completely broke, consider three potential sources of funds:

Are you getting a raise this year?

If so, use that “extra” money to pay down holiday debt. According to the consulting firm Mercer, the average employee will receive a 3% pay raise in 2013. And you likely will get one, since only about 2% of employers say they’ve implemented pay freezes this year.

Do you typically receive a tax refund check?

If so, start planning to file your income taxes so you can use that money to reduce holiday debt. In 2012, the IRS says the average federal tax refund check topped $3,000. Couldn’t that go a long way in paying your credit card debt?

Do you have items in your house that you no longer want or use?

If so, sell those things (on eBay, a yard sale, a consignment shop or wherever) and use the cash to help eliminate holiday debt.

In other words, don’t just be a “hater” or a “Negative Nellie” who can’t think creatively about how to use this strategy to your benefit.

Naysayers and doubters will just stay in debt. Optimists and doers who keep an upbeat outlook and act positively will get rid of their holiday debt sooner rather than later.

If you still don’t have extra money

If all else fails, and you can’t come up with any “extra” money, don’t despair.

You can still try four other techniques.

1.    Negotiate lower interest rates

Call your credit card companies and simply ask for a lower interest rate. At least this will lower the amount of finance charges you have to pay, making it easier for you to more quickly get rid of debt. (Here are my tips on how to negotiate and six things to ask from your credit card companies).

2.    Use debt counseling or a debt management program

If your own negotiations don’t get you anywhere, you can try using a reputable credit counseling service or entering a debt management program. With these debt relief options your credit card interest rates will typically be lowered greatly and your credit card bills will be consolidated into one affordable monthly payment.

3.    Slash other expenses

When holiday debt cramps your overall budget, one creative solution is to cut other expenses. Any cost-cutting with other bills is what I call an “offset” – a savings that can be used elsewhere; in this case, your savings will help pay down debt. (See this article for tips on how to save money on a tight budget).

4.    Reduce your normal spending

None of us can cut out spending entirely. You do have to eat, keep a roof over your head, stay clothed, etc. But once holiday debt threatens to wreck your finances, it’s time to evaluate your total spending and look for categories of spending that you can lower. Can you reduce food costs in any way? Can you lower commuting expenses? Can you cut out any luxuries, like trips to beauty salon?

Ultimately, it’s up to you to pay off those holiday credit card bills and not let them hurt your finances or your credit.

(Related: Read 6 Ways to Get Out of Debt).

As daunting as it may initially seem, eliminating holiday debt is doable – and you’ll feel so much better when it’s finally done.


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