4 Tips for Paying Off Holiday Debt
With the holidays gone and the new year underway, you might be mapping out your financial goals. If one of them includes paying off debt that you accrued over the holidays, then it helps to have a strategy for realizing your goal.
Paying off debt after the holidays, or any time, means knowing what you can afford to pay as well as finding ways to save money.
1. Take a holiday debt inventory
The first step in creating your holiday debt payoff plan is simply knowing what you owe and to whom. Make a list of each of your holiday debts. If you did the bulk of your spending with credit cards, for example, make note of:
- Each card’s balance
- APR for purchases
- Whether any promotional APR applies
- Minimum payment due and monthly due date
- Total amount of debt owed
Seeing the numbers in black and white is important for working on the next step in your holiday debt payoff journey.
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2. Choose a debt repayment strategy
There are different ways to approach paying off debt after the holidays or any other time. Two of the most popular methods are the debt snowball and the debt avalanche.
The debt snowball method involves ranking debts from lowest balance to highest. You’d then allocate extra money to the first debt on the list, while paying the minimum due to all the others. As you pay off a debt, you snowball its payment to the next debt on the list.
The debt avalanche method follows the same formula, with one key change: instead of ranking debts from lowest balance to highest, you’d rank them from highest APR to lowest.
Between the two, the snowball method may offer a quicker win if you’re able to pay off one or two small debts right away. But if you want to save the most money on interest over time, the debt avalanche may be preferable.
With either one, review your post-holiday budget to see how much extra money you have to allocate to debt. And don’t forget about found money either. For example, if you received a year-end bonus from work or you’re expecting a tax refund soon, you could use that to wipe out a chunk of your debt all at once.
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3. Consider a 0% Balance Transfer Offer
High credit card APRs can make chipping away at holiday debt balances challenging. One way to make those debts less expensive is by transferring them to a new credit card at a 0% introductory APR.
Some of the pros of transferring holiday debt to a 0% credit card include:
- Saving money on interest charges
- Potentially paying off what you owe faster
- Streamlining debt so you only have one monthly payment
On the other hand, the cons of a 0% balance transfer include:
- Paying a potentially steep balance transfer fee
- Owing interest charges if you don’t pay the balance off in full before the promotional period ends
- Temptation to run up new balances on the cards you transferred
When considering 0% APR balance transfer offers, pay attention to how long you’ll have to pay the balance down before the regular APR kicks in. Consider the card’s benefits and features and calculate what you’ll pay for the balance transfer fee.
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4. Consolidate holiday debt with a personal loan
Personal loans can be used for a variety of purposes, including consolidating holiday debt. Some of the benefits of using a personal loan to consolidate credit cards include:
- Combining multiple monthly payments into one
- Potentially saving money on interest
- More time to pay off holiday debt at a low rate
With 0% APR offers, the clock is ticking on how long you have to enjoy that low rate. For example, you may have 15 or 18 months before the regular APR takes effect.
A personal loan can give you more time to pay down holiday debt, since it’s possible to get loans with terms of up to five years. Ideally, you’re paying off holiday debt much sooner than that but you may appreciate knowing that you have a longer deadline if you need it.
Personal loans can also save you money on interest if you’re able to lock in a lower rate than what your credit cards charge. If you’re interested in a personal loan to consolidate holiday debt, take time to compare loan rates from different lenders. Check for any fees and consider how long of a loan term you’ll need to pay off your debt.
Start planning now for next year’s holidays
Taking on debt to pay for holiday spending can strain your budget when the time comes to pay it off. By creating a plan for saving early in the year, you can be financially prepared to enjoy the holidays without adding to your debt.
What to know about paying off debt and getting your finances back on track
Rebecca Lake is a freelance writer specializing in personal finance,
credit and debt. She’s a contributor to U.S. News and World Report,
Forbes Advisor and The Balance and her work has appeared online at CreditCards.com,
Money-Rates.com and dozens of other top publications.