In between holiday shopping, parties, travel and more, holiday spending can really get away from us. Sure, you might’ve created a tentative budget for holidays. But if you weren’t careful, it could’ve been pretty easy to go over budget a little—or a lot.
Does this situation sound familiar? You’re definitely not alone. During the 2021 holiday season, Americans ended up with an average of $1,131 in holiday debt, with 65% of that being held on credit cards. And for most people, paying off holiday debt wasn’t a priority in January, which meant they carried debt over and incurred interest expenses on it. By February of 2022, 40% said they had not paid off their holiday debt.
In fact, 20% of respondents said they carried a balance on their credit cards every month of the year.
Reducing holiday debt, or paying it off as quickly as possible, can save you money in interest and save you from financial stress. Discover tips for paying off holiday debt in this piece.
Tips for Paying Off Holiday Debt
- Only spend what you can afford in cash
- Pay off debt as early as possible
- Apply for a balance transfer card
- Cut down on unnecessary spending
- Snowball your debt to pay it off faster
- Use the avalanche method to pay down holiday debt
- Consolidate debt with a home equity loan
- Get another type of consolidation loan
- Leverage your tax refund
1. Only Spend What You Can Afford in Cash
One of the best ways to avoid the holiday debt cycle is to reduce holiday debt to begin with. Create a budget for gifts, decor, food, travel and other holiday spending and stick to it. Only plan to spend what you can afford to pay for in cash during the holiday month.
Planning on using credit cards for your holiday spending? Go for it—it could actually be beneficial. Credit cards may offer better security. Many have 0% liability policies, so if someone gets your card number and makes fraudulent purchases, you’re off the hook.
Plus, rewards credit cards can be a great way to rack up cash back, miles or points as you shop for the holidays. Those rewards let you get more for your spending or save money on holiday spending. Just make sure you have the money set aside and pay the balance off immediately to avoid interest costs.
2. Pay Off Debt as Early as Possible
In the excitement of the holidays, it’s easy to go above budget. You may need a last-minute gift or outfit for an event, or the present you had your heart set on for someone might cost a little more than you planned for. While it’s important to make efforts to stick to your budget, overages happen, and they aren’t the end of the world.
If this does happen to you, pay off any debt you carry out of December as quickly as possible. When you sit down to do your January budget, look at the debt you have from the holidays. Can you pay it off within January so you’re only getting hit with one month’s interest?
For example, if you have $500 in holiday debt, that’s roughly $125 a week. See if you can make a budget plan for the month to make that happen. If not, move to a two-month plan. That would be roughly $63 a week, or less than $10 a day, needed to pay off the debt.
Make debt easier to pay off faster by using a low-interest credit card to pay for things during the holidays. The less you’re paying in interest each month, the faster you can pay off your balances.
3. Apply for a Balance Transfer Card
If you have decent credit, you may be able to get approved for a balance transfer card with a 0% introductory APR offer. Introductory periods can last from six months to a year or more, giving you more time to pay off debt without incurring interest expenses. You can transfer holiday shopping balances from higher interest cards to a new balance transfer card to save money and pay off your debt faster.
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4. Cut Down on Unnecessary Spending
Expensive habits can make it hard to pay off debt. If you want to make a bigger dent in your balance, think about giving up one or more luxuries or unnecessary items each month and using that money to pay down debt instead. Consider making the following changes—just for a little while:
- Cut your cable bill and trim other entertainment expenses
- Cook meals at home instead of eating out
- Consolidate errands so you drive less and spend less on gas
- Forgo a few luxuries at the grocery store
- Go out for drinks fewer times a month
5. Snowball Your Debt to Pay It Off Faster
The snowball method is a way to pay off debt that helps you get excited about the process because you see more movement toward your goal. Here’s how it works:
- List out the debts you want to pay off in order from lowest to highest balance.
- Make minimum payments on everything but the lowest balance. Pay as much as you can on that one.
- The smallest balance gets paid off fairly quickly. Take what you were paying on that balance and add it to the minimum payment you’re making on the next-lowest balance.
- Keep carrying over the amount to the next balance in line. By the time you tackle larger balances, you’ll have a big payment to make each month and things can go pretty quickly.
6. Use the Avalanche Method to Pay Down Holiday Debt
An alternative to the snowball method is the avalanche method of paying down debt. This method is the same as the snowball method except you align debts by interest rates and tackle the balances with the highest rates first. This method can help you save on interest expenses.
7. Consolidate Debt With a Home Equity Loan
If you have equity in your home, you might be able to get a home equity loan to cover your holiday debts. Depending on your situation, a home equity loan may be able to consolidate more than just debt related to holiday spending.
Home equity options are beneficial because they typically come at much lower interest rates than other forms of debt. That can save you money over time. You’ll also only be contending with one monthly payment, which may be more convenient.
However, the debt is tied to your home, so make sure that you can actually make the payments. Otherwise, the lender could force the sale of your home to recoup its losses.
8. Get Another Type of Debt Consolidation Loan
Don’t have equity in a home or want to leave your home out of it? You might be able to qualify for a personal loan to consolidate your debts. While the interest rate is likely to be higher than with a home equity loan, it may be lower than your credit card interest rates. You also get the benefit of a single, more manageable monthly payment.
9. Leverage Your Tax Refund
If you know you’re getting a big tax refund, you might plan to use it to pay off your holiday debts. Complete your tax return as early as possible to get the refund sooner and you can even save on interest expenses.
How Long Does It Take to Pay Off Holiday Debts?
That all comes down to you. Plan ahead for the holidays, make sure that you have the right credit cards to make the most of your spending and stick to your budget, and you may stop holiday debt before it even happens. And if you have to carry over a balance, you can use our credit card payment calculator to figure out how long it might linger.
If you find yourself dealing with holiday debt longer than you’d like, the state of your credit score can be important. Having good credit can help you access tools like balance transfer cards to minimize the cost of your holiday debt. Find out more about your credit now by signing up for ExtraCredit.