How to Quickly Pay Down Holiday Debt

It happens every year - it's time to shop, people overspend, and then they have to figure out how to pay off their vacation debt. However, with a little careful planning, consumers who go beyond their budgets to stuff those socks and spread the holiday cheer through a difficult year can recover quickly and minimize the damage of debt.

Assess your debt

Not all debts are the same. To pay off vacation debt in the most strategic way possible, you need to understand the nature of each debt you owe. Some of the common types of debt you may have include: Credit Cards - Unless it's a new card, you're probably paying a fixed APR on your balance each month.

Retail Credit Cards - If you signed up while on vacation, your purchases can be part of a 0% deferred interest plan that will charge full interest on your original purchases if you don't pay the balance at the end of the 0% period.

Personal loans: they usually have a fixed APR and fixed monthly payments.

Buy now, pay later: standard financing with online purchases. It may or may not offer deferred interest. Payments are usually fixed.

Make a list of all your debts, the total amount owed, the minimum payment due, and the interest rates. Then decide which reward to prioritize.

Payment budget

The best way to deal with vacation debt is to invest as much money as you can. That could mean making some short-term sacrifices to expand your budget.

Check your income to see how much is coming in and is used for regular household bills and expenses. If there is a way to generate more income by doing some extra work or overtime, go for it. Or maybe you have a vacation voucher on the way; Use it to pay off your debt.

Then review your expenses. Are there cuts you can make in recreational spending, subscriptions you can pause, bills you can cut? You can also get creative by selling vintage items (or gifts that don't fit your style). The additional savings and money found can help pay off vacation debt.

Finally, if you have accumulated cash rewards from your vacation expenses, you can apply part of those earnings as a credit to your statement. This can be a quick and painless way to balance your balance.

Choose a payment strategy

Once you've figured out how much vacation debt you have and how much money you have to work with, it's time to come up with a strategy. Here are three tried and tested methods to pay off vacation debt.

The snowball method

This debt payment method recommends that you put the extra money on your smallest balance first, while making the minimum payments on the rest. After paying the lowest balance, move to the next lowest balance. That way, you can eliminate debt one by one from your list faster and stay motivated towards your overall goal of getting out of debt.

The avalanche method

One downside of the debt snowball method is that you can end up paying more interest if the largest balances you pay last have the highest APRs.

Through the avalanche method, you use your extra money to pay off the balances with the highest APR first, while making minimum payments on all other balances. Once your first balance is depleted, move your list to the next highest debt.

Consider a balance transfer

If you have good credit, you can benefit from opening a new credit card with a 0% APR offer for balance transfers. You will go from high interest debt to the new card and have a certain amount of time to pay it off without interest. The most competitive balance transfer offers offer at least 15 months of 0% APR.

Please note that many balance transfer cards will charge an initial balance transfer fee (usually 3-5% of balance). Your goal should be to pay off the balance before the introductory period ends, to avoid paying interest on balances left after your 0% APR ends.

Interest-deferred retail debt first

If you opened store credit cards or chose the Buy Now and Pay Later at checkout option to fund your holiday purchases, it may be beneficial to pay off these balances first. After the promotional period ends, the issuer will charge you interest on all purchases you made as part of the promotion. Not only will this slow down your return targets, but the annual percentage rates for retail cards are, on average, several points higher than the average for cards.

 

We hope you enjoy watching this video about How to Quickly Pay Down Holiday Debt

Source: The Ramsey Show - Highlights

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