In 2018, Americans racked up, on average, about $1,230 in holiday debt.
Are you one of those who ended up with holiday debt? If so, now that we’re in a new year, there’s a good chance one of your financial resolutions is to pay off that debt.
If you’re dealing with a holiday debt hangover, here are a few tips that can help you get over it.
1. Look for a Balance Transfer
The first step is to see if you can find a way to limit the interest you pay. When you have high-interest credit card debt, each payment you make has a large portion going to interest. You don’t pay off your principal, and that means expensive debt that lasts longer.
If you can transfer your balance to a 0% APR credit card, you have a chance to reduce the interest you pay, allowing you to tackle your holiday debt faster. There are a lot of balance transfer offers available near the first of the year, so you might be able to move your holiday debt onto a card with lower interest and then go from there.
Just make sure you have a plan to pay off your debt before the 0% APR promotional rate disappears.
2. Consider Your Current Financial Situation
Now that you’ve shifted your holiday debt into a position where it’s a little more manageable and a little less expensive, it’s time to figure out where you stand financially.
Take an honest look at your situation. Some things you can do as you review your finances include:
- Add up other debts you might have
- Look at your spending for the last two months
- List your bills (housing, insurance, utilities, etc.)
- Review your income and paydays
This is information that can help you get a handle on your financial situation. When you understand where you’re at, you are more likely to be effective in making a plan going forward.
3. Figure Out How Much You Can Put Toward Holiday Debt Reduction
Now that you have a clear picture of your finances, it’s time to determine how much you can spare to tackle your holiday debt each month. This amount should be on top of your minimum payment. Keep in mind that the more you put toward your debt reduction, the faster you’ll get out of debt.
One good way to find available money is to review your spending and look for waste in your budget. The average household wastes about 10% of its monthly income, so if you make $3,500 a month, you might be wasting $350 each month.
Of course, every situation is different, and you might have other costs that shave that number. But it gives you a good starting point to see if you can find a few unnecessary things to cut from the budget.
4. Create a Deadline for Getting Rid of the Debt
Now that you’ve figured out how much you can use to pay down your holiday debt, it’s time to create a deadline. If you were able to get a balance transfer, you want to have the debt paid off before the promotional APR runs out.
For example, if you have a nine-month promo period, you need to have your debt paid off by then if you want to avoid getting hit with the higher regular rate. So, if you have $1,200 in holiday debt, you need to put $133.33 toward your debt each month in order to pay it off.
If you don’t have a 0% APR, you have to realize that you’ll be paying interest as you tackle your holiday debt. You can use a calculator to see how long it will take to pay off your debt, and make a plan based on what you can set aside each month.
5. Put Extra Money Toward Debt Reduction
Now, it’s time to take your holiday debt paydown to the next level. If you get extra money, put it toward paying down your debt. There are a number of benefits to paying off debt — and not all of them are financial.
You can put part of your tax refund, any inheritance you get, or money from a side hustle toward reducing your debt.
Use These Steps for Other Debts
You can also use these strategies to tackle bigger debts. If you have good credit, a personal loan with a lower interest rate can help you consolidate your debts into a more manageable form — and save you money in interest.
In general, debt costs you money and prevents you from reaching other financial goals. Whether it’s holiday debt, or whether it’s other types of debt, the faster you can pay it down, the better off you’ll be.