7 Ways To Handle Post-holiday Debt

After a year when inflation hit record-breaking highs, millions of Americans relied on credit during the holiday season to pay for gifts, food and celebrations. Lending Tree noted that Americans took on an average debt of $1,549 this past holiday season, and it’s estimated that nearly half of Americans can’t cover a $1,000 emergency – making it even more important to stay on top of existing debt. Luckily, Rocket Money^SM is here to help with 7 ways you can best manage your debt after the holiday season.

1. Update your budget to account for any new or increased debt payments

If you incurred any debt over the holidays, it’s likely your minimum payments have increased also, as credit card payments are calculated as a percentage of your total balance plus interest. To make sure you can pay down your debt quickly and still afford your other expense, update your budget under the gear icon in the Rocket Money app.   

2. Split your payments to help grow your credit

Your credit utilization ratio, or the amount of credit you use as a percentage of your total credit limit can impact up to a 30% impact on your credit score. This makes it the second-highest weighted credit factor, following payment history, which is why it’s so important to keep your balances low. One recommendation would be to pay down your debt multiple times throughout the month, helping to keep your credit utilization low and your payments on time. For example, you might split your debt payments into two, paying 50% of your payment halfway through your billing cycle, and the other 50% before your payment due date. This will help lower your credit utilization and improve your credit score over time.

3. Remove yourself from store email lists

Want to rein in your spending after the holidays? Consider unsubscribing from store email lists that are likely to tempt you with various sales for things you don’t need. You can also use Rocket Money to identify and cancel unnecessary subscriptions, or even let us negotiate a bill for you if you really want to cut back. Scroll to the bottom of the Recurring tab in Rocket Money to get started today. 

4. Make extra payments on your highest-interest debt

If you have multiple debts spread across several credit cards or sources, take the time to look up the interest rates or annual percentage rates (APR) for each of them, and order them from highest to lowest. Then, if you’re able to make any extra payments on your debt (on top of your monthly minimums), consider applying that payment to the highest-interest debt first. This is known as the avalanche method and will save you the most money in interest over time.

If you prefer to completely pay off the smallest balance debt first, consider the snowball method instead. 

5. Put any tax refunds to good use

Anticipate a tax refund this year? While it may be tempting to splurge on a purchase or think of your refund as “free money,” you’ll get the most bang for your buck by applying it to your debt. This is because any extra payment you can make toward your debt will help pay down interest, saving you money in the long run. Still want to make a fun purchase for yourself? Consider splitting your tax return 50/50 – with 50% going toward your debt, and 50% toward whatever sounds nice to you! 

6. Set up Smart Savings for future holiday spending  

Did holiday spending catch you by surprise this year? Odds are, it’s not the only line item you perhaps don’t budget for every month, unlike your annual insurance payments and credit card fees that can generally be anticipated with a certain frequency. To get ahead next year, consider setting up a “sinking fund” using Rocket Money’s Smart Savings. Smart Savings will help you set a savings goal, and then based on what we know about your spending habits, Rocket Money can help you save little by little toward that expense, automatically. Alternatively, you can set a custom amount and frequency if you want more control. Either way, by putting some money aside each month, you’ll be much more prepared for holiday shopping or whatever infrequent expense comes your way next. 

7. Automate your payments 

When paying down post-holiday debt, being on time with your payments impacts up to 40% of your total credit score. On the flip side, not making any payments on time can drastically hurt your credit. Luckily, most financial institutions now offer automatic bill pay, which can help make sure you meet your minimum payments on time. If you’re worried about a potential overdraft, consider keeping a small buffer in your checking account or check with your bank to see if they can add any protections. 

Already missed a payment? It happens to the best of us – but try not to make it a habit. Being more than 30 days past due will mark you as late on your credit report, but more than 90 days can drop your score by over 150 points.

Looking for other ways to stay on top of your money? Download Rocket Money today to start tracking your bills, set up payment reminders and more.