Strategies for Getting Out of Holiday Debt
Introduction
The colored lights are descending. The Christmas decorations and army of inflatable penguins are returned to storage.
The holiday season has ended. It is now time to assess the damage.
Don't panic if you went a little overboard during the holiday season and exceeded your budget (and then some). The funds have been expended.
Now is the moment to focus on the small, doable steps you can take to manage your debt and regain your financial health.
Here are a few of the most effective methods for reducing holiday debt.
Take Stock
At times, the concept of debt can feel overwhelming, to the point where we'd rather not even open those creditor statements. Thank you very much.
But debt is always just a number, and even if it's a large number, it will be much easier to formulate a realistic plan once you know where you stand.
Therefore, begin by dissecting the statements and taking stock. All of this information can be consolidated into a spreadsheet or a money management app. The important thing is gaining a complete understanding.
Some things to pay attention to:
Total debt
Interest rates
Due dates
Are any accounts past due?
Are there any promotional rates or benefits to keep in mind (0% APRs that may be expiring soon, etc.)?
Are all these figures accurate?
Find Your Wiggle Room
Ideally, this is the point at which you create a new, impressively detailed budget. This budget outlines the fate of every penny that passes through your bank account and pinpoints the exact moment you are free of these new debts forever.
However, this is not how the majority of people actually handle their finances. A more realistic approach would be to look for much-needed budgetary wiggle room.
Because you are well aware that paying the minimum on these new debts will not be sufficient, you need a little extra money each month to make real progress.
This means temporarily reducing or eliminating regular expenses until holiday overspending is repaid. Here, the word "temporarily" is crucial. What if it only takes six weeks of "Boxed Mac 'n Cheese and Blu-rays We Already Own" nights to make up for the loss of your weekly "Steak and Imax" night?
A few significant cuts (or a series of smaller ones) can give you the boost you need to quickly eliminate your new debt.
Pay off a specific amount of debt in three to five months.
The majority of holiday shoppers planned to pay with a credit card, according to a PwC survey. The average credit card balance per household exceeds $9,000.
Consumer credit card balances in the US reached their highest level in 20 years by November of last year, up 15% from the prior year, according to the Federal Reserve Bank of New York.
Paying down the additional holiday debt you accrued can alleviate some of this financial strain.
You could make this one of your New Year's resolutions.
Work on improving your credit score
Those with "good" to "excellent" credit scores are more likely to be eligible for lower interest rates on credit cards, auto loans, and mortgages, according to experts.
Therefore, a good credit score can have a significant impact on the cost of your debt. The faster you can pay off your debt, the more you can reduce its cost.
There are credit card companies that will provide your credit score at no cost. Usually, you can find it on your billing statement. You must first review your credit report and
Challenge any errors if you want to raise your credit score.
Apply for a credit card with 0% interest on balance transfers.
Transfer your existing balances to the new credit card. You may incur a 3% transfer fee, but you won't be charged interest on your debt for 12 to 20 months.
Again, a good or excellent credit score is typically required to qualify for the best offers. Also, you likely won't be able to transfer a balance to the same card issuer.
Get Help If You Need It
If you are unable to obtain a card with a 0% APR or lower rate, consider applying for a personal loan. If you are eligible for a large enough loan with a reduced rate of interest than your current card, you can use that loan to consolidate all or most of your credit card debt.
According to Bankrate.com, the average rate on a personal loan was 10.64% at the beginning of December, which was less than half the average credit card rate.
Simply avoid spending the loan money. If you obtain a personal loan to pay off credit card debt, you must immediately pay off your card balances with the loan's proceeds.
Pick Up a Side Job
Obtaining a second job to pay off debt has always been a wise strategy, but it has not always been simple.
Numerous supervisors frown upon moonlighting out of concern that it will reduce worker productivity at their primary jobs. Even when employers were more accommodating, it could be difficult to make the schedule work.
These days, it is much simpler to pick up some extra work and the accompanying extra cash.
Whether you drive for Uber while the kids are at band practice or work from home as a freelance writer or virtual assistant, the extra cash will come in handy, and you can use it to reduce your holiday spending.
Request a lower interest rate from your credit card company.
If you do not request a lower rate, you will not receive one. But if you do ask, you probably will. A Lending Tree survey revealed that 70% of cardholders who requested a lower interest rate received one, with an average reduction of seven percentage points.
Making this phone call immediately is more crucial than ever. After seven consecutive rate hikes by the Federal Reserve, the average credit card rate is approximately 23%. The APR for store credit cards exceeds 30%.
Conclusion
To avoid post-holiday debt the following year, plan for and save for recurring holiday expenses.
For example, if you typically travel, buy gifts, or host holiday gatherings, you can budget for these expenses one month in advance. Consider opening a savings account specifically for your holiday spending needs.
In addition, you can prioritize your anticipated holiday expenses and spread out your shopping throughout the year to reduce your end-of-year expenditures. This ensures that your bank account does not take a significant hit just before the New Year.