The holiday debt hangover can be very real for those who get carried away on during the festivities of the season. But whether you tend to over-spend when you’re holiday shopping for the people you love or splurge on seasonal trappings and comfort foods, coming into the new year with holiday debt doesn’t have to cripple your money management for the next year. Check out this list of realistic, easy-to-apply tips for how to payoff holiday debt.
1. Consider Applying for a Balance Transfer Card
How you recover financially after the holidays depends in part on your overall financial situation and credit score. If you can swing an approval for a balance transfer credit card, this might be a good move in helping you curtail holiday debt. If it seems counter-intuitive to open a new credit card in the face of existing debt, consider these facts:
- A balance transfer card with a 0% introductory APR lets you paydown your balance without incurring additional interest charges. That lowers the overall cost of your debt and helps you get rid of it faster.
- Balance transfer cards sometimes offer this option for 12 to 24 months. That gives you one to two years to pay off your debt in a less stressful way.
- If you can transfer $1,200 in holiday debt to a card with a 12-month introductory APR of 0%, you can pay it off $100 a month.
The best balance transfer credit cards are often reserved for those with good or better credit, so consider checking your credit score before you apply. And if you do go this route, make sure you don’t run up new debt on your old cards after transferring the balances. That puts you in a position that’s worse than when you started.
2. Reduce Interest Charges by Paying Holiday Credit Card Debt Early
Not everyone may qualify for a balance transfer card, and that’s okay. There are other ways to paydown holiday credit card debt quickly. By paying as much and as early as possible, you help reduce the amount of interest you’re charged.
Interest accrues daily on credit card balances. By making your payment as early as possible in your statement cycle, you reduce the balance for future days. That means there’s less of a balance to calculate interest on, which means you’ll be charged less interest.
It might sound like a small amount, but interest fees add up quickly. Americans carried over an average of more than $1,000 in holiday debt in 2018. Paying off a decent chunk of that amount early could save you more than $100 in interest. Consider the example below.
- $1,000 balance, 21% interest and payments of $50 each month
Total interest cost: $241.58
Time to pay off the debt: 2.1 years
- The same balance and interest rate but paying $100 each month
Total interest cost: $108.93
Time to pay off the debt: 1 year
- The same situation with a $200 monthly payment
Total interest cost: $55.97
Time to pay off the debt: 6 months
3. Create a Realistic Plan for Zeroing Out Holiday Debt
The difference between paying your holiday debt off in six months and two years can be huge, but make sure you’re realistic about your debt reduction plans. You can’t pay $200 a month on a card if you don’t have $200 a month.
Take some time in early January to make a working budget for the new year. Account for all your income and your expenses. Consider what’s left and how much you need to save for emergency expenses or retirement. Then, determine how much extra you can put toward your holiday credit card debt.
4. Find One Thing You Can Give Up Temporarily to Pay Off Debt Faster
If you’re looking at your budget and scratching your head trying to come up with extra money for credit card debt, consider your expenses. Are they all absolutely necessary? If you can give up something, even in the short term, you can divert that money to paydown your debt.
Common expenses people give up to help them payoff their credit card debt include:
- Eating out—or eating out as often
- Entertainment expenses, such as cable
- Extras such as going out every weekend or unnecessary driving
- Certain types of snacks or beverages that bring the grocery budget up but aren’t needs
5. Consider a Debt Consolidation
If your holiday debt is on high-interest credit cards, you may feel like every step forward is smaller than it should be when paying it off. Balance transfer cards aren’t the only way to reduce the interest rate on this debt. You may be able to use a debt consolidation loan to pay off the credit card balance, especially if you have equity in your home you can use as collateral.
There are a few debt consolidation options can be beneficial if they result in lower interest rates. But make sure you don’t run up your credit card balance again. If you do, you’ll be looking at double the debt you were trying to paydown.
6. Plan Ahead for the Next Season to Avoid a Repeat
Use the Credit.com credit card payoff calculator to get a full understanding of what your holiday debt could end up costing you—and how long it could take to payoff. This can be a real eye-opener and help you see the danger in arriving at the next season unprepared. Make a plan now to reduce over-spending for this year.
You might start saving now, shop throughout the year for gifts to get the best deals or set a budget on what you’re able to spend during the holidays. When you do, make sure you stick with it. It’s the impulse spending in the middle of the season that usually ends up pushing people into debt.