The holiday season, while joyous and full of celebration, often leads to a more relaxed approach to spending and budgeting. Many of us are all too familiar with the piled-up plates and sometimes, the over-extended finances that accompany this festive time.
The National Retail Federation projected that in 2024, Americans would shell out around $902 on holiday expenses—a figure that marks a record high. If such expenses found their way to your credit card bills, you might be pondering ways to manage your balances as the new year rolls in.
Valerie Rivera, a well-regarded financial planner from Chicago, observes this as a common pattern among her clients. She notes how similar financial health is to physical well-being, emphasizing that people often tend to ‘binge’ financially during the holidays and look to ‘detox’ in January. "It’s like the start of the year is a reset button for many—to get their budget and spending back on track," she comments.
Should reducing debt be a primary goal on your 2025 to-do list but you’re unsure of where to kick off, consider following these four straightforward steps.
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Get a Clear Picture of What You Owe
Understanding the full scope of your debt is crucial. In finance, as in life, it’s difficult to move forward without recognizing where you currently stand. Samantha Gorelick, a certified financial planner based in New York City, recommends detailing each debt by its balance and interest rate. This comprehensive overview will help you understand the landscape. Be prepared: confronting the numbers can be emotionally challenging, because debt often carries a stigma. "Credit card debt brings with it a notion of personal failure, but often, external factors are at play," Gorelick explains. Whether your income hasn’t grown in line with inflation or unexpected medical expenses caught you off guard, there’s no need to dwell on guilt. Everyone grapples with debt now and again, and there are paths to overcoming it. -
Choose a Payoff Plan
Armed with a clear picture of your debt, it’s time to strategize on repayment. Options like debt consolidation have proven effective for unsecured debt, such as credit card balances. Consolidating converts multiple payments into one, potentially at a lower interest. For instance, if your credit card APR averages around 23% and you can secure a consolidation loan at 15%, investing the savings reduces your overall interest costs and expedites repayment. If your credit score needs a boost to qualify for low rates, consider tackling a few smaller debts first; even small successes can bolster your credit standing. Gorelick points out, “Midway through, many notice their score has climbed into the 700s, opening up new financial avenues.” Alternatively, methods like the snowball or avalanche can also be effective for tackling debt. -
Build and Maintain an Emergency Fund
Rivera and Gorelick stress that an emergency savings fund is nearly as essential as debt repayment. By putting aside even a modest amount—say, $20 a month—you can avoid relying on credit cards in a pinch. Automating these savings into a high-yield account, ideally one less accessible to everyday temptation, can be beneficial. As debt is paid down, additional funds might support this savings goal, aiming to cover several months’ worth of living expenses. “Building a three-month cushion might take a couple of years, and that’s perfectly acceptable,” Rivera emphasizes. - Recognize When to Seek Assistance
If managing your debt feels overwhelming, it might be time for expert advice. While advertisements for debt relief are everywhere, debt settlement options, where debts are negotiated to less than what you owe, can harm your credit long-term—often more than is initially disclosed. Gorelick warns, “Settlements can leave a lasting mark on your credit report.” Serving as a more stable alternative, a nonprofit credit counseling agency may suggest a debt management plan that streamlines payments without reducing your creditworthiness. These programs enable you to pay off debts under improved terms over a few years.
Approaching the new year with a roadmap for handling debt—while safeguarding against unforeseen expenses—can set you on the path to more secure financial footing.
