by Simon Wright

Created on: December 29, 2008   Last Updated: January 02, 2009

We all set out with good intentions. We have a budget that we intend to stick to for the holiday season and a list of all the people that we need to buy presents for. Sometimes, however, life isn't that simple and doesn't go to plan. Unexpected costs arise and, before you know it, you've spent more than you intended to and have wrung up some debt on your credit card or overdraft.

This is especially true at Christmas, when there is immense pressure to splash out to buy gifts for others and to entertain guests with all the attendant costs that go with that. Many of us, too, are far too generous and spend beyond what we can comfortably afford to. Whether you've spent too much money on yourself or other people, the simple truth of the matter is that the added expense is going to come back to bite you. What, then, can you do to successfully manage the holiday debt that you've accumulated?

The first thing to do is to sit down and review your debt position. Sometimes people in debt are reluctant to face up to the bills but burying your head in the sand won't make the problem go away. How you manage your post-holiday debt will depend on the scale of debt and your individual financial position. If the debt you've accumulated is fairly modest, and you have savings, then you may be able to pay all the debt off immediately in one go. If this is feasible, this will be the most prudent approach as it will minimize the amount of debtor interest (and charges) that you end up paying. However, if it isn't feasible to pay off your debt immediately, then you will need to work out a repayment plan.

Deciding on a debt repayment plan:

Your objective, in dealing with debt, should be to pay off the outstanding debt as soon as is feasible and to ensure that you pay off the most expensive debt first. This latter point is important as it flags up that not all types of debt are the same. We'll take a moment now to briefly run through the main types of debt that people typically end up with.

The most common scenario is that we put most of our costs onto a credit card or, in some cases, onto more than one credit card. We know that, by doing so, we won't have to pay at the time of purchase but rather at a later point. This "buy now, pay later" mentality, however, can be very damaging to our finances and it's important, therefore, to reduce and pay off that credit card debt in the minimum amount of time.

Another possibility is that the debt is accumulated on an overdraft. Overdrafts fall into two

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