It’s always a little sad when the holidays are over. But now that the celebrations are behind us, it’s time to start a new year and to face the challenges ahead, including dealing with any holiday debt you may have accumulated over the past few months.
As tough as it can be to face up to holiday debt right now, there are good reasons to do just that. Consider this: If you put $1,000 in holiday purchases on a credit card with 16% interest, and only make the minimum payments, it’ll take you five years to pay it off. The good news is the faster you tackle your debt, the more you can save on those charges, and less that debt will have a chance to hurt your credit.
In addition to saving on interest payments, becoming more debt free can also help you start 2021 on the right financial foot. Let’s take a closer look at how you can get rid of holiday debt and move toward a healthier financial state in the upcoming New Year, no matter what it brings.
Choose a debt payoff strategy
The two most common debt payoff strategies are the debt snowball and the debt avalanche. With the debt snowball, you focus on your smallest debts first and work your way up to the larger ones. If you’d like to stay motivated, the debt snowball is likely your best bet.
The debt avalanche is the method where you prioritize your highest interest debts. It can help you save as much money as possible if you face hefty interest charges. Understand what your priorities are and start working with the strategy that meets your needs.
Extra credit: If you have a several cards with lower interest rates to pay off, the snowball is probably the way to go.
Consider a balance transfer card
Balance transfer cards often come with 0% annual percentage rates for a set period of time. If you qualify for a balance transfer card and feel confident you can pay off your holiday debt before the period is up, this option should be on your radar. Just keep in mind that you may not get approved for this type of card unless you have good credit. Also, failing to pay off your debt before the end of the introductory period can lead to a sky-high interest rate and steer you further into credit card debt.
Extra credit: Balance transfer cards are actually even harder to get now, as lenders have tightened credit. If your credit score isn’t great, work on that first, or consider getting professional debt help.
Cut back or eliminate some luxuries
While takeout and Netflix may make your life a bit brighter during lockdown, they can also interfere with your holiday debt payoff plan. Therefore, it’s a good idea to either cut back or temporarily eliminate these luxuries while you pay down your debt. To keep yourself motivated, remember that this is for a set time only, and you can return to these treats as soon as you achieve your goal.
Extra credit: If you are lucky enough to have the funds to save and pay down debt at the same time, there is a way to put money toward savings even while snacking and watching movies.
Earn extra money
The New Year is the perfect time to start a side gig or sell any items you don’t want or need for extra cash. You can deliver groceries, tutor online, design graphics … the list goes on. Get creative and think about how you could use your hobbies, skills, and talents to earn some money and say goodbye to your holiday debt.
Extra credit: The idea you come up for your side gig may turn into a new and successful opportunity that you continue to pursue throughout the year.
Use your windfalls wisely
Windfalls are sums of money that you receive without necessarily expecting or budgeting for them. If you get an extra holiday bonus, cash from your loved ones, a larger tax refund, or even a stimulus check, allocate it toward your holiday debt. While it may be tempting to treat yourself with this windfall, using it on debt can save you in interest charges.
Extra credit: It doesn’t sound fun to use a windfall to pay debt, but do this: Write down the amount you pay to your credit card, plus interest charges, plus any fees. When you see how much each dollar of debt payment returns, it’s a bit more exciting.
Take advantage of unwanted gifts
Chances are you received a gift or two that you’ll never use. If it’s a gift card to a store you don’t shop at, you can trade it in for cash through a site like Cardpool or Raise. In the event it’s an item you’re not a fan of, you may be able to return it for cash with a gift receipt. Use the money you earn to pay toward debt.
Extra credit: Even if you don’t have a gift receipt or don’t know where a gift is from, you can sell it. Take a look at online marketplaces like Facebook Marketplace, LetGo, or any of the many others out there now.
Coupons are a great way to save money on groceries, household supplies, restaurants, entertainment, or just about anything else. To claim coupons, you can enroll in rewards programs at your favorite stores, pick up weekly ads while you’re out shopping, use social media, or check your receipts. You may also print out coupons or download their digital versions on websites such as:
Extra credit: Be disciplined about using your savings to pay down your debt. Separate the money you save with couponing by putting it in a separate account which you only use to pay off debt.
Don’t be afraid to ask for help
These tips should help you get out of holiday debt sooner rather than later. But if you’re struggling with more debt than you racked up from just buying presents and are facing a real hardship, it might be time for some professional help. Freedom Debt Relief is here to help you explore your options, including our debt relief program. Our Certified Debt Consultants can help you get a stronger financial footing and create a plan for a better financial future. Find out if you qualify.
- Should You Change Your Financial Planning? (Freedom Debt Relief)
- 3 Ways to Pay Off Holiday Credit Card Debt Fast (Freedom Debt Relief)
- Money Management in 2020 and Beyond: This Year’s Top Posts (Freedom Debt Relief)
- 3 Tips for Paying Down Holiday Debt (The New York Times)