Holiday spending may easily get away from us with holiday shopping, parties, travel, and other activities. Sure, you may have made a rough budget for the holidays. It would have been easy to go over budget a little—or a lot—if you hadn’t been diligent.
Do you recognise this scenario? You are most certainly not alone. Americans owed an average of $1,325 in holiday debt during the 2020 holiday season, with majority of it owed on credit cards. Most folks didn’t prioritise paying off holiday debt in January, which means they carried debt over and accrued interest charges.
Around half of Americans expected to pay off holiday debt in the three months after the holidays, 8% expected it to take four months, and 16% expected it to take more than five months. Around 15% said they merely expected to pay the bare minimum, potentially stretching their holiday debt across years.
Reduce your holiday debt, or pay it off as soon as possible, to save money on interest and avoid financial stress. In this article, you’ll learn how to pay off Christmas debt.
1. Only spend as much money as you can afford
One of the most effective strategies to avoid the Christmas debt cycle is to eliminate holiday debt in the first place. Create and stick to a budget for gifts, decorations, food, travel, and other holiday expenses. During the holiday season, just spend what you can afford to pay in cash.
Do you intend to pay for your holiday purchases with credit cards? Take a chance—it might be advantageous. Credit cards might provide more security. Many offer zero-liability rules, which means you’re not responsible if someone steals your card number and uses it to make fraudulent purchases.
Plus, using a rewards credit card to shop for the holidays can help you earn cash back, miles, or points. These benefits allow you to get more for your money or save money on seasonal purchases. Simply set aside the funds and pay off the debt as soon as possible to avoid paying interest.
2. Pay Off Debt as Soon as You Can
It’s easy to go over budget over the holidays because of the excitement. You may require a last-minute gift or dress for an event, or the present you had your heart set on for someone may be more expensive than you anticipated. While it’s crucial to stick to your budget, overages sometimes occur, and they’re not the end of the world.
If this happens to you, pay off any debt you have from December as soon as you can. Look at your holiday debt when you’re making your January budget. Can you pay it off in January so you only have to pay interest for one month?
3. Fill out an application for a Balance Transfer Card
You might be able to get approved for a balance transfer card with a 0% introductory APR if you have good credit. Introductory periods can range anywhere from six months to a year or longer, providing you extra time to pay off debt without paying interest. To save money and pay off your debt faster, move holiday shopping balances from higher interest cards to a new balance transfer card.
4. Reduce unnecessary expenditures
Debt repayment can be difficult if you have expensive habits. If you want to make a deeper difference in your debt, consider giving up one or more pleasures or unnecessary purchases each month and putting the money toward your debt.
- Reduce your cable bill as well as other entertainment costs.
- Instead of eating out, prepare meals at home.
- Consolidate your errands to save time and money on petrol.
- At the grocery shop, forego a few luxuries.
- Reduce the number of times you go out for drinks each month.
5. Use the snowball method to pay off your debt faster
The snowball approach is a debt-reduction strategy that encourages you to stay motivated by allowing you to observe progress toward your goal. The following is how it works:
Order the debts you want to pay off from smallest to largest balance.
- Make minimum payments on all balances except the smallest. On that one, pay as much as you can.
- The smallest balance is usually paid off first. Add the minimum payment you’re making on the next-lowest balance to the amount you were paying on that balance.
- Carry the balance over to the next balance in line. You’ll have a significant payment to make each month by the time you tackle higher accounts, and things will move rapidly.
6. Pay Off Holiday Debt with the Avalanche Method
The avalanche technique of debt repayment is an alternative to the snowball method. This strategy is similar to the snowball method, except instead of aligning debts by interest rates, you attack balances with this method.
7. Use a home equity loan to consolidate debt
You might be able to secure a home equity loan to offset your Christmas obligations if you have equity in your property. A home equity loan may be able to combine more than just debt tied to holiday spending, depending on your position.
Home equity loans are advantageous since they usually have lower interest rates than other types of lending. In the long term, this will save you money.
You’ll also only have to deal with one monthly payment, which may make things easier.
However, because the debt is secured by your home, make sure you can afford the payments. Otherwise, your lender may be forced to sell your house in order to recuperate its losses.
8. Apply for a different type of debt consolidation loan
Don’t have any equity in your property or wish to leave it out? You might be able to consolidate your debts with a personal loan. While the interest rate is likely to be higher than that of a home equity loan, it may be less than that of your credit card. You’ll also enjoy the convenience of a single monthly payment.
9. Take Advantage of Your Tax Refund
If you’re expecting a large tax refund, you might decide to put it toward paying off your Christmas debts. Complete your tax return as soon as possible to collect your refund faster and save money on interest.
How Long Does It Take to Pay Off Holiday Debts?
It’s entirely up to you. Plan ahead for the holidays, make sure you have the correct credit cards to maximise your spending and stay on track with your budget, and you might be able to avoid holiday debt altogether. If you need to carry an amount over, you may use our credit card payment calculator to see how long it will take to pay it off.
The health of your credit score can be vital if you find yourself dealing with holiday debt for longer than you’d want. Having strong credit can help you get balance transfer cards and other tools to help you pay off your Christmas debt. Now is the time to learn more about your credit.