In 2021, the average American spent $1,131 on holiday-related expenses. According to the same source, more than one-quarter of Americans regret the money they spent celebrating Christmas.
Holidays are a time of celebration, but the aftermath can be financially devastating if you overspend. If you are starting a new year with holiday debt, there are ways to pay off your debt and save on interest charges. This article discusses ways to pay off your holiday debt and tips to save on credit card interest fees.
Such practices can also help you achieve greater financial success in the future. Discover how to manage your holiday debts by reading this article.
Holiday loans can be overwhelming, especially if you have payday loans to worry about. Reading more about interest and fees can give you the knowledge to help you overcome such difficulties.
Ways to Help You Pay Off Your Holiday Debt
If you are not careful, holiday spending can create unnecessary stress. People are often tempted to spend money they do not have during the holidays, which can lead to debt.
Creating a plan to reduce credit card balances and pay off holiday debt ensures that the coming year will not be financially stressful. Here are some ways to avoid carrying a balance on your credit card in the new year.
- Pay more than the minimum. Putting off paying your bills is a surefire way to rack up interest charges. Paying more than the minimum balance can help you save money by keeping your interest rate low.
Consider how much purchases will cost if you make only the minimum monthly payment. Understanding the cost might make you more aware of how much you spend each month.
- Decide which debt-reduction strategy to use. Once you have settled on a reasonable amount to pay each month, the next step is deciding how you will use that money. Debt avalanche and snowball are two methods to help eliminate your debts.
The snowball method involves making the minimum payment on all your accounts except the card with the lowest balance. Then, you pay off the smallest loan first. Once that debt is eliminated, you take the money you were putting toward it and apply those funds to your next-smallest debt. Ideally, you would continue to pay off your debts until they are all gone.
As each balance is erased and rolled over to the next one on your list, the amount of money used gets larger. This results in faster debt reduction.
The avalanche method of debt reduction focuses on first paying off loans with the highest interest rates. Like the snowball method, once the higher-interest debt is paid, money goes toward the account with the next highest interest rate.
Focusing on the loans that cost you the most to carry, in the long run, would effectively mean paying less over time by addressing high interest first.
- Pay your bills promptly. The worst consequence of missing a payment is that you will be charged a late fee, and your loan’s interest rate might increase.
Suppose you fail to make two payments in a row. In that case, your credit card issuer may increase the interest rate on your current balance and charge new purchases at an even higher rate. Remember that your credit score will suffer if you do not pay your bills on time.
- Consider other types of debt consolidation loans. You can get a personal loan if you do not own a home and want to consolidate your debts.
While a debt consolidation loan has a higher interest rate than a home equity line of credit, it can still be cheaper than paying off your credit cards. You will also benefit from a single, manageable monthly payment.
- Use your tax refund to pay off holiday debt. If you know you are getting a big tax refund, consider using it to pay off your holiday debts. You can get your tax refund more quickly by filing early. If you pay interest on other debts, this could save you money in the long term.
Tips on Reducing Your Interest Payments
- Build on your credit score. A better credit score can help get lower interest rates. To improve your credit score, you should pay off your existing debt. Improving your credit score before you apply for a loan will make the application process much easier.
Because lenders consider customers with higher credit scores to be safer borrowers, they offer these customers lower interest rates.
- Get a low-interest credit card to help you manage your finances. You should live within your means and pay off your credit card every month. If interest charges are eating into your budget, apply for a low-interest credit card.
The best low-interest credit card for you is the one that most closely matches your needs. If you expect to carry a balance for only a short period, look for a card with an introductory interest-free rate and pay off the entire balance before that offer expires.
- Decide on a repayment plan that works for you. It is essential to choose a repayment plan that is appropriate for you. A loan with a longer tenure will have smaller payments but incur more interest.
If you can pay more each month, your term will be shorter, and you will save on interest.
The point is that there are ways to pay off your holiday debt and save on interest charges. If you want to reduce the financial stress of holiday shopping, prioritize your spending, get organized early, and stick to a budget. Doing so will make you less likely to take on more debt to cover previous debts incurred over the holidays.
- Building the Perfect Plan to Pay Off Holiday Credit Card Debt