It is that time of the year when you’re struggling to recover from holiday debt and the tax season is knocking at your door! Also, you don’t have much time to manage your finances since you’re busy with the tax calculations.
However, whatever be it, at any cost, you’ll have to maintain a budget in spite of tax pull and holiday debt. Only then you’d be able to recover from holiday debt and manage to pay your taxes.
Check out how you can recover from holiday debt, manage tax payments, and reduce tax as much as possible.
Tips to maintain budget to repay holiday debt and pay tax
First, let’s talk about how to maintain budget and repay your holiday debt, whatever left, along with paying the tax.
Here are a few tips:
Cut down every extra expense for some time
To pay off your debt and save money for tax payments, you’d have to cut every extra expense and practice a frugal lifestyle.
It may mean stopping both eating outs and visit to the malls for a couple of months. For some of you, it may also mean canceling your gym memberships or cable subscriptions, especially if you don’t use them much.
This will help you free up a significant amount to repay debt and accumulate money to pay tax.
Read more: 6 budgeting rules for a financial boost in your life
Change your everyday habit
If you have the habit of buying a Starbucks coffee every morning, then stop doing that. Instead, make your coffee and carry it with you when you drive to work.
Opt for a healthy habit and prepare your lunch and dinner yourself.
Choose a suitable plan to repay debt
At first, list your debts with the rate of interest and outstanding balance. Then, choose a method – snowball or avalanche and target one debt to pay off.
What you do is, make minimum payments on all debts and pay a little extra towards the targeted debt.
If you choose snowball, you’ll repay the smallest balance debt first and if you opt for the avalanche method, then you target the highest interest debt first.
Once you pay off the first targeted debt, employ the same strategy towards paying off the next one on your list.
Do a part-time job in your spare time
Choose a part-time job as per your interest. You can browse the internet for some interesting part-time jobs that you’ll enjoy doing.
For example, if you like to teach, you can opt for giving online tuitions.
You can also be a tasker and carry out tasks of others.
Sell your unwanted items
If you search your house, you’ll find several items that you no longer need. Sell those items and earn cash. Choose gifts you don’t need, electronic items, and so on.
Just post them on the Craigslist and sell these items.
Use the amount to repay holiday debt or to pay taxes.
Use your tax refund to repay debts
You will have to arrange funds to pay the tax. However, once you get the refund, use the amount to reduce or pay off your debt burden.
This is a great way to use your tax refund to shake off your debt burden.
Tips to pay less tax, legally of course!
It becomes easier to maintain a budget when you have to pay less tax. Here’s how you can reduce your tax burden.
- If you’re planning to buy a house, a mortgage can save you a significant amount of tax, as mortgage interest is tax-deductible.
- The more you contribute to your 401(k) account or IRA, the more your AGI (Adjusted Gross Income) gets reduced, and in turn, the tax amount also gets reduced.
- Choose the accurate filing status to enjoy more tax deduction.
- Make charitable contributions to enjoy a tax deduction.
For this coming holiday and the next tax period, add an amount to your monthly budget so that you can save a certain amount throughout the year. This will help you avoid holiday debt and stop worrying about taxes the next time.
What you have to do is calculate how much you spend during the holiday season and calculate on an average how much you pay for taxes. It is better to have two separate accounts for tackling these two expenses.
Then, divide the amount by 12 and include them in your holiday budget. At least you’d be able to save a considerable amount towards these two expenses. In turn, it will help you enjoy more and step into the new year without worrying much about managing your personal finances effectively.