If you decided to ignore your balances until after Christmas, it’s time to pay off holiday debt!
The holidays can be extremely tough on your budget. According to retail expectations, the average household spent almost $1,000 this year. That level of overspending often leads people to make a conscious decision to ignore their balances until after the holidays. But the result is that once you get the bills, you may be reeling at how much you charged. This is known as a holiday debt hangover.
Are you feeling the effects?
So, it’s the 26th of December. All of the presents should be open, the stockings unstuffed. And if you’re like many people, you may be looking for something to do today to get a break from family activities. Our recommendation? Find a cure for your holiday debt hangover!
How to make a plan to pay off holiday debt
As you can see from the infographic, there are several ways to address high credit card balances. And we made that infographic in 2015, so chances are high you spent more this year. That means higher interest charges and more time and energy spent paying off the debt.
So, we recommend taking these steps today to make a plan to pay off your holiday charges:
- Write down all your credit card balances, including the APR on the each account. We have a credit card debt worksheet to help you out.
- Now it’s time to estimate how long it will take to pay it back. You have three options:
- Minimum payments
- Minimum payments, plus a little something extra
- Larger fixed monthly payments
- Use our credit card debt calculator to estimate total interest charges and time to payoff.
- If you don’t know your credit card payment schedule, just choose 2% – it’s average for most credit cards.
- You can calculate each card separately or, to make things easy, just total up your debt and use average APR.
If you will still be paying off this year’s holiday spending by next Christmas, then you need one of the cures we talk about in the infographic. The first two cures for paying off holiday debt require a good credit score.
When each cure is the best way to pay off holiday debt
Credit card balance transfer: This is the best holiday debt solution when you have excellent credit. That gets you the longest 0% APR intro period. Then do some calculations to see if you can pay off your full balance within that period. If so, this is the right solution.
Debt consolidation loan: This is the best way to pay off holiday debt when you have good credit and a low debt-to-income ratio. If so, you can take out a loan to pay off your balances.
Debt management program: If your credit isn’t the best or you have a lot of debt already, this is generally the best solution. It allows you to consolidate debt without new financing. It’s just a more efficient repayment plan that you arrange with your creditors.