What went wrong? Put your mind on rewind and go back a few months. How come you spent so much? Did you run out of cash before you got to the end of your list, so you started charging? Did you feel pressured to make sure the kids weren’t disappointed? Perhaps you didn’t anticipate expenses beyond buying gifts — things like extra food for entertaining, tickets to the pageant, travel to your in-laws’ … and on it goes.
Take a deep breath and write down the amount you overspent. Don’t hide, just face up to it and decide right now that you will do what you must to repay it.
Clearly, the only way to put the situation right is to repay the money. And there are a number of ways you can do that. Here are three ways to bounce back. Choose the one that you can live with.
NO. 1: QUICK AND EASY
While aggressive, this is your best option: You’ll pay the lowest amount of interest and the problem will be history long before next Christmas. In this scenario, you’ll repay the total amount in three months. Let’s say your debt is $1,000. To eliminate it in three months at 16.99% interest, it will take three payments of $345 (total payback with interest, $1,028).
However, if you didn’t have enough money to pay for Christmas in full, you may not have enough for this aggressive fix. But if you’re serious, there are things you can do to make it happen.
Declare a spending freeze. Start now and follow through until the money is repaid. That means no unnecessary spending of any kind. None. You may even want to freeze your credit cards (I’m serious about this!) in a block of ice in your freezer. That way you can’t get to them and continue to rack up debt. Too tough? Not when you know this is just for three months or until you reach your goal.
Sell things. Take advantage of eBay or Craigslist.org. Look around and assess all the stuff in your home. Liquidating some of it could benefit you in two ways: raising cash and simplifying your life.
Search for unclaimed funds. This may sound too good to be true, but somewhere you may have unclaimed cash (also referred to as unclaimed property). These funds can be in the form of forgotten checking or savings accounts, undeliverable tax refunds and insurance payments, or leftover credits from mortgage payoffs or utility services. Google “unclaimed funds” plus your state to search online. Be sure to check every state where you’ve lived, under your current name and also your maiden name.
NO. 2: SLOW AND STEADY
In this scenario, you’ll repay the amount you overspent in six months, so by summer the problem will be fixed. This method, however, will cost you more in the long run — smaller installments mean you’ll pay more interest. In my example, $1,000 at 16.99% will pay off in six segments of $195 each (total payback, $1,046). To do this, consider the following:
Pick your sacrifice. You may not be ready to do a complete spending freeze, but you do need to cut back on eating out, buying little extras for the kids and other nonessential spending. Determine your sacrifice for six months, then divert that money to paying Christmas debt.
Save on groceries. Make a pledge to buy only sale items. This is such a simple way to lop off at least 30% from your grocery tab. You’ll have to give up brand loyalty, but you won’t starve. Supermarkets have items on sale in every area of the store, every week. Just be sure to take what you saved on groceries and use it to pay down your debt.
Caution: By spreading your payback over six months, you run the risk of becoming complacent. The temptation will be to push it to seven months, then a year — and before you know it, you will have moved onto the next category.
NO. 3: LONG AND PAINFUL
This is your worst nightmare. In this scenario, you leave that additional $1,000 on your credit card and decide to just live with it, making minimum monthly payments. I hope you’re sitting down. At 16.99% interest, a $10 minimum payment and typical credit card terms, you’ll still be paying for your mistake in 2033. I’m not kidding! It will take you nine and a half years to pay back $1,000 — and it will cost you $717 in interest on top of the money you overspent. The payback will still be going on next Christmas, and the next, and every Christmas for the next decade.
Prevent it next time. While paying back the money as quickly as possible is important, it’s even more important that you take steps right now to prevent this from happening again. Once you know why you overspent, ask yourself what you should have done differently.
I doubt if any of us will reach the level of perfection where we never make any financial mistakes. But I can tell you from my own experience that these mistakes can become fewer and farther between, even at the holidays.