Borrowing

4 Holiday Hangover Cures That Really Work

Nobody likes a hangover—especially the financial kind. Yet after the holiday binge-spending season, many of us start the New Year with an aching budget.

In fact, a December MagnifyMoney survey found those of us who overspent this holiday season will kick off 2017 with just over $1,000 worth of new debt. Ouch.

Get some relief with these four steps.

Map out a debt repayment plan—stat.

Interest on big credit card balances can accrue fast—especially now that rates are on the rise. It’s wise to do everything possible to pay that off fast.

“Most credit card [interest rates] are tied to the prime rate,” explains Marguerita Cheng, Certified Financial Planner and CEO of Blue Ocean Global Wealth. “When the rate increases, so will the interest on your credit card.”

In this order.

Financial experts typically recommend tackling the debt with the highest interest rates first (the avalanche method) because it saves the most over time. But you might prefer the snowball method, which focuses on clearing away small debts first. Cheng says that’s also a great way to “gain momentum and build confidence” to keep moving forward.

Either way, take steps to free up extra money now—by negotiating down cable or cell phone bills, for example, brown-bagging instead of getting takeout a couple times a week or pushing off purchases that aren’t necessities. Then divert that money toward debt payments.

Think about refinancing.

Believe it or not, opening a new credit card could actually help when paying off debt. Look for balance-transfer cards with no interest for a certain period of time. (For example, the Chase Slate card doesn’t charge a transfer fee or interest for 15 months.) This doesn’t lower your balance or erase interest that’s already accrued, but you can avoid additional interest as you pay down the balance. Just be sure it’s completely paid off before the interest-free period ends.

Another option: applying for a personal loan from marketplace lenders, like SoFi, Earnest or Prosper. You won’t find an interest-free deal, but rates are often much lower than what’s typically applied to credit cards.

Build a cushion, too.

It’s not just debt that triggers a financial hangover. Skimming a little too much from savings can cause a headache, too. While you’re paying off holiday debt, be sure to budget for rebuilding a cash cushion, as well—ideally, until you get three to six months’ worth of basic expenses banked.

And don’t forget to put money toward long-term goals through an IRA (the deadline for 2016 contributions isn’t until April 18) and other investment accounts. This is the money that will work hardest for you—long after you invest it.

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