Hangover with holiday debt: how to get your finances back on track

Recent surveys show that a growing number of Canadians are carrying holiday-related debt into the new year and are feeling more financial pressure as a result. In this article, we’ll explain what’s behind the Christmas hangover, why these types of debts have become so common, and provide practical steps to pay them off so you can get your finances back on track.

The state of holiday spending and debt in Canada

According to Spengel latest Financial Hangover surveyAbout half of Canadians (51%) will carry new holiday debt into 2026, and almost three in 10 will start the year with more than $6,000 in holiday-related balances. At the same time, 75% report feeling more financially stressed than in recent years, and almost one in five expect to fall behind on credit card payments.

“These numbers show how easily seasonal spending can turn into a long-term debt trap when you’re dealing with an annual interest rate of 19.99% or 29.99%. That ‘hangover’ doesn’t just go away, it grows,” says Ronique Saunders, Credit Canada credit advisor. According to Spergel’s research, nearly one in three Canadians say it will take six months or more to recover financially from holiday spending.

These consequences go beyond the numbers on a statement. Carrying high balances increases your credit utilization, which can hurt your credit score and make future loans more expensive. High balances also cause significant interest charges and monthly interest charges, which can quickly decrease your cash flow and increase the total amount you owe. And seeing a large balance month after month adds emotional stressmaking it harder to save or plan for the rest of the year.

Many Canadians carry holiday debt into the new year due to some common money habits. One of these is the current bias: the focus on fun now and increasing costs in the future. Another is the optimism bias: the expectation that finances will recover without a clear plan. These habits are normal, but they can cause debt to last longer than expected, especially as interest rates on credit cards increase.

Step-by-step strategies for financial recovery

Understanding how common this “holiday hangover” occurs—and taking steps to tackle your debt—can help you regain control of your money and reduce both financial and emotional stress as the year begins. Here’s how to get started.

1. Assess your current situation

The first step to getting back on track is figuring out where your money is. Take out your credit card and bank statements from January and add them up holiday debt. Looking at the numbers in detail provides a basis for every decision that follows.

A useful way to start is by creating a ‘financial picture’. This is a snapshot of your finances at a specific point in time, showing what you own and what you owe. To take a financial picture, use a piece of paper or a spreadsheet and write down everything you own (savings, investments, maybe a house) and then subtract any debts, such as credit card balances or loans. This will give you a clear idea of ​​your net worth, separate from your daily budget.

“Understanding your complete financial situation can help you identify, organize and create a realistic plan to pay off what you owe,” says Saunders.

2. Make a realistic budget for 2026

Think of your budget as a spending path for the coming year, taking into account a plan to reduce the debt you incurred during the holidays. When making a budget you can use a budgeting app, spreadsheet or a simple sheet of paper on which you can list your income and expenses, including debt payments. Determine how much money you need to spend each month and compare it to how much you pay for different bills and items during the same period. This will help you determine where you can cut back. Those savings are then possible be focused on your debts so you can pay it off sooner.

The goal is to allocate as much as you can reasonably toward the debt while still covering your necessary expenses. “A realistic 2026 budget doesn’t have to be restrictive; it should simply reflect your values, priorities and financial goals for the year ahead,” says Saunders.

3. Prioritize high-interest balances

Once you have a budget in place, you can analyze your cash flow to determine the best strategy for debt repayment. Keep in mind that not all debt costs the same. Credit cards usually have the highest interest rates, so paying them off first will save you the most money over time.

Two common repayment strategies are the snowball and avalanche methods. The snowball method focuses on paying off your smallest balance first, giving you quick wins that build momentum. The avalanche method targets the balances with the highest interest first, which reduces the total interest you pay and can shorten the total repayment period.

Advisor tip: If your interest rate is above 20%, the avalanche method is almost always the better choice to stop the ‘bleeding’ of your monthly income.

4. Increase cash flow

Increasing the money you have available can speed up your holiday recovery. Look for temporary ways to earn extra income, such as freelance work, part-time jobs or selling things you no longer use. You can also free up cash by reviewing subscriptions or non-essential expenses and turning that money into paying down debt.

5. Pay more than the minimum

Minimum payments may seem manageable, but they keep you in debt longer and increase the overall interest you pay. Whenever possible, try to pay off a larger portion of your balance, as much as your budget allows.