After A Long Recession, Over-Spending May Be Tempting

Tips for confronting and tackling holiday debt

Confronting debt may be something many Americans resolve to do in 2017, especially after the holidays. When tackling post-holiday debt Americans should consider laying out a clear, coherent plan – and sticking to it without neglecting their other long-term financial goals, such as saving for retirement.

If you want to reduce your holiday debt, you need a strategy that suits your personal circumstances. Here are some steps that will help you pursue tackling debt this year:

Step 1: List all your debts. Document how much you owe, the interest rate you pay on each loan or credit card, and how much money you currently devote to debt reduction each month.

Step 2: Define your debt goals. Do you want to reduce your debt to a particular level or be completely debt-free? What is your timeline?

After answering these questions, calculate how much you need to pay each month to meet those goals. Then, look at ways to find the money you’ll need — such as cutting discretionary expenses, getting a part-time job or turning a hobby into extra income.

Step 3: Consider consolidating or refinancing. Explore opportunities to consolidate your debt. This may significantly reduce your overall monthly interest charges and make it easier to pay off the principal, but be sure to read the fine print before consolidating or refinancing any loans.

Step 4: Begin paying down your debt. You might want to focus on paying the highest-interest debt first, since this can be the biggest financial drain. Another option is to consider focusing on paying off the debt with the smallest balance first, while making minimum payments, or more if possible, on your other debts. Once that smallest debt is paid, continue tackling the debt with the next lowest balance. Any extra funds are then paid to the highest-interest debt. This strategy can help you make some quick progress, giving you the momentum and encouragement you need to stay on track with your plan.

Step 5: Plan for your next financial goal. Once you’ve accomplished your debt-reduction goal or are well on your way, you can take steps to help keep your level of debt manageable. Compare your spending with your income to make sure it’s sustainable. You may want to create a rainy-day fund that can cover six months of expenses to reduce the chances of having to take on new debt in the future if your financial situation changes for the worse. Saving even a small amount has the potential to make a big difference.

These are some easy to do steps that may help you change your financial future for the better, by dealing with debt now and better managing your finances.

Tom Gustafson is a Financial Solutions Advisor and Assistant Vice President for Merrill Edge.