The holidays are a special time when families reunite to share memories of the year gone by and plans for the year to come. It all kicks off with Thanksgiving turkey and ends with… the bills arriving in the mail in January. Ouch! It’s not unusual for folks to get a bit carried away with presents and parties. And let’s not forget the costs associated with travel. But while few actually regret the money they spend during the holidays, many are in need of some common sense advice about how to crawl out from under that debt once the holidays are over. In this post, we’re going to look at 5 ways to pay off your holiday debt.
Credit cards can be lifesavers. Yet they can also be the source of significant holiday debt that comes back to haunt you at the start of the New Year. Unfortunately, you can’t simply ignore those bills when they come in. And making minimum monthly payments is asking for trouble. So how do you retire holiday debt in the quickest and most painless manner? Here are 5 ways.
1. Take Those Credit Cards Out of Your Wallet
Battlefield medics operate on a very simple principle. When they encounter a wounded soldier, their first job is to prevent things from getting any worse. Once that happens and the patient is stabilized, they can ship them off to have their wounds properly tended to. It’s the same with debt. If you want to get a handle on your holiday debt, the first thing to do is to prevent the problem from getting any worse. You do that by removing temptation.
Most people carry 3 or 4 credit cards with them at all times. In order to establish a ceiling on your debt, you’ll need to reduce that to 1 which you will use only in the event of an emergency. And no, concert tickets do not qualify as an emergency. Adopt this more austere approach until the holiday debt is retired. Who knows? You may become so enamored of it you decide to make it your default approach going forward.
2. Devise a Budget
It’s not easy and a majority of people don’t do it. But in order to get a handle on holiday debt, it can be extremely useful to sit down and hammer out a budget for the months covering the early part of the year. This will help you get back on a sound footing heading into the summer vacation period. In order to see where you can cut back, you’ll need to do a cold-light-of-day assessment of where you’re currently spending to excess.
Most people have no idea exactly how much money they fritter away until they put it down on paper. When they do, they’re often shocked by just how much money slips from their grasp by way of discretionary purchases. It doesn’t mean you’re bad or irresponsible. Hey, we’re trained to spend. It’s what keeps the economy ticking. But there’s a time to spend and a time to cut back for a while. Once you know where the money is disappearing, you can devise a budget and get a handle on discretionary spending.
3. Use a Personal Loan to Consolidate Debt
Borrowing money to retire debt may seem counterintuitive to a lot of people. But it’s actually a tried and true way to start oneself back on the road to sound finances. People with multiple credit cards (in other words, just about everyone) often wind up paying outrageous amounts of interest, have little available credit (which can adversely affect their credit score) and often lose track of who is owed what.
A personal loan from a reliable lender like Western Shamrock Corporation can bring all that debt under one roof, free up space on your cards (which you’re not going to use right away, right?) and simplify the repayment process. And, depending on your credit score, you could wind up getting a low-interest rate that will save you a significant amount of money in the long run. As icing on the cake, you can often start the application process online.
4. Apply for a Balance Transfer Card
If you have a decent credit rating you may be eligible for what’s known as a ‘balance transfer card’. Sometimes referred to as a ‘0% APR card’ they let you transfer the balance from your high-interest card. The 0% APR card then charges, you guessed it, 0% interest on the transferred balance for as long as 21 months. If you can pay off the balance within that time frame you’ll no doubt saved a significant amount of money. The only catch is that there is a one-time fee involved that typically amounts to anywhere from 3% – 5% of the transferred balance.
Most people who manage to pay off the balance before interest payments kick in will still wind up saving a bundle despite the transfer fee. Just keep in mind that the benefit is lost if you wind up using the balance transfer card to make everyday purchases. The only way it’s going to work is if you exhibit a bit of willpower by transferring the balance and then putting the card in the home safe instead of in your wallet. That way every payment you make is applied directly to the principle.
5. Make More Money
This might seem like a no-brainer, or a classic ‘easier said than done’ option. But it has to be on the table. With the job market as hot as it is right now, there’s never been a better time to take on a bit of extra work in order to get your financial house in order. Resolve to take any extra income you earn and put it all toward paying down debt. You’ll be out from under the holiday headache in short order, well-positioned to enjoy the rest of your year.
An even better idea is this: take on extra work to pay down your holiday debt. Once that debt is retired don’t cut back on the work. Keep at it and put every dollar of extra income in the bank to cover your holiday expenses for next year. That way you’ll break the cycle of holiday debt. Believe us, you’ll feel great being able to cover all your holiday expenses with money you saved earlier in the year. And when January 2021 rolls around, you’ll be free of enormous credit card bills.
A Word of Warning: Avoid the Debt Dismissal Trap
You may have heard of the concept of debt dismissal and decided it’s the best way to go for you. After all, why pay down a huge debt if you can get the credit card issuer to accept just a fraction of what you owe? But while that sounds good on a superficial level, once you slice it open you discover it’s an apple with plenty of worms hiding inside.
- First of all, there is no guarantee the credit card issuer is going to go for it. They may take a look at your finances and determine you’re more than able to repay in full.
- Second of all, even if they do agree to dismiss most of your debt, you can kiss your hard-earned good credit rating goodbye for at least the next 7 years.
- And third, you know all those thousands of dollars that the credit card issuer forgave? Well, the IRS did not forget. They consider forgiven debt to be the same as income and you’ll have to pay taxes on every dollar that was dismissed.
In the long-run, debt dismissal should be considered a last gasp option, only to be invoked if everything else has failed.
The Bottom Line
Don’t let holiday debt get the better of you. There are numerous ways to get out from under it that don’t require you compromising your financial security or credit rating going forward. All it takes is a plan and a bit of patience. Take the above tips to heart and you can be sure your holiday memories will be sweet instead of sour.