Debt Consolidation

How to Pay Off Debt After the Holidays

holiday debt

The holidays are a time of giving, but that comes at a price: Americans will spend $602.65 on gifts this holiday season, according to a December 2019 LendingTree survey on holiday spending. Parents with children under 18 will spend even more, at $850.38 on average.

Racking up bills over the holiday season is unfortunately normal, but you shouldn’t let the burden of holiday debt hang over your head throughout the year. Utilize these five strategies to pay down holiday debt fast:

1. Pay off debt with a debt avalanche or debt snowball

2. Calculate debt repayment into your budget

3. Utilize a balance transfer credit card

4. Open a debt consolidation loan

5. Talk to a credit counselor ー it’s free!

How to avoid racking up debt next year

1. Pay off debt with a debt avalanche or debt snowball

The pressure to make the holiday season perfect can cause you to overspend. When it does, consider employing the debt avalanche or debt snowball repayment methods to tackle your credit card bills. With these, you’ll tackle your debts one at a time. The key difference between these strategies is the type of debt you should tackle first.

Compare your options using this table:

2. Calculate debt repayment into your budget

Santa’s elves don’t work for free. When the credit card companies send bills come January, don’t just make the minimum payment. You’re setting yourself up for financial ruin, considering you’ll end up paying as much as 25% interest (or more) even if you pay your bills on time.

It’s important to account for holiday debt repayment in your monthly budget immediately. That way, you’re not paying extra for holiday gifts you already gave. See some popular budgeting methods in this table, and decide which one will help you tackle your holiday debt:

3. Utilize a balance transfer credit card

It might seem counterintuitive to open a new credit card to get rid of your credit card debt, but it’s not at all. You’re not taking on more debt, you’re simply moving your credit card debt to a new card with a lower APR.

As an added bonus, some balance transfer cards offer promotional 0% APR periods, so you could potentially pay no interest at all if you pay down your holiday debt within that period, typically up to 21 months. If you don’t, however, you’ll be charged all of the accumulated interest up to that point; this is known as deferred interest.

Here’s what you’ll need to do:

  1. Determine how much you need to transfer. This will be important when you search for cards with a balance transfer limit that suits your needs.
  2. Find a card with an introductory 0% APR period that lasts as long as you’ll need to repay the balance. Use our marketplace to compare balance transfer cards.
  3. Calculate how much you’ll need to pay each month in order to eliminate your debt before the introductory period ends.

Keep in mind that this debt repayment strategy isn’t for everyone. If irresponsible credit card use got you into debt, then another credit card might not solve the problem unless you get to the root of your overspending. (You could find the root of your overspending by adhering to a stricter budget.)

Plus, balance transfer credit cards may not be available to those with lower credit scores, and people with bad credit almost certainly won’t be able to qualify for a 0% APR offer.

4. Open a debt consolidation loan

As far as debt repayment strategies go, you can’t overlook the debt consolidation loan. This type of personal loan gives borrowers a way to consolidate all their debts into one manageable monthly payment with a fixed APR.

Since this type of loan is unsecured, lenders will rely heavily on your credit history. Rates vary dramatically for people depending on their credit score.

Learn more about this form of debt repayment:

5. Talk to a credit counselor ー it’s free!

Families struggling with high amounts of holiday debt may benefit from credit counseling services. Many nonprofits offer free credit counseling sessions, which might include:

  • Money and debt advice
  • Help with budgeting
  • Educational materials on money management

While initial credit counseling sessions come at no cost, consumers will have to pay for other services, such as debt management plans and bankruptcy courses.

Click through the following links to search for credit counselors who are accredited through the National Foundation for Credit Counseling or the Financial Counseling Association of America.

How to avoid racking up debt next year

The best way to avoid racking up holiday debt is to budget for gift-giving throughout the year. Between birthdays, graduations and holidays, it’s easy to be blindsided by the flashiness of seasonal gift-giving. In January, make a list of all the special occasions that will require you to bring a gift. That way, you’re not caught off-guard when it’s time to pony up for your nephew’s 5th birthday.

Account for a little extra in your budget each month. If you’re like most Americans and spend about $600 on gift-giving, then you should put aside $50 per month for the entire year.

Also, keep in mind that you don’t owe anyone a gift. If gift-giving would put you in a bad situation financially, just be honest with the recipient. Send a thoughtful hand-written card, or maybe bake them a birthday cake instead of giving them a gift card. After all, the holiday spirit isn’t about material goods ー it’s about showing your loved ones how much you care.

 

Debt Consolidation Loans Using LendingTree