Yahoo Finance 1 in 10 Still in Debt From 2022 Holidays: 6 Ways To Pay It Back and Go Debt-Free This Christmas
It’s the unofficial tradition we don’t talk about nearly enough: racking up debt around the holidays. In 2022, 35% of Americans took on holiday debt, per findings by LendingTree. That debt still weighs heavily on many; a separate LendingTree survey revealed that 10% of Americans are still paying off holiday bills from last year’s shopping.
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How do you pay off debt you built up from the 2022 holiday spree? Additionally, how do you go debt-free this yuletide season? Let’s dig in!
How To Pay Back Debt From Last Year’s Holidays
Heading into the holidays with debt still weighing on you from the previous year can be a real drag, and a financial risk. Here are some expert pointers on how to pay back debt from last year’s holiday spree.
Try the Snowball Method
The snowball method to pay off debt is one where you set out by listing your debts — ranking them in order from smallest to largest, and then tackling them in that order.
“Pay the monthly minimum on each debt except for the smallest debt,” said Sean Fox, president of debt resolutions at Achieve. “For that debt, pay as much over the minimum as you can. When you’ve paid off that smallest debt in full, continue with the same pattern to pay off the next-smallest debt. This works well for people who like checking an item (a debt) off the list — even a small one.”
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Try the Avalanche Method
You might prefer the avalanche method, where you start with making a list of outstanding credit card debt by card, and the interest rate charged for each.
“Rank from the highest to lowest interest rate,” Fox said. “Then pay the monthly minimum balance on all debts while applying as much additional as you can to the debt bearing the highest interest rate. Once you’ve paid off that balance, continue to the debt that has the next-highest interest rate. Keep going until all debts are paid off.”
Leverage Balance Transfer Credit Cards
Balance transfer credit cards can, optimally, provide a temporary escape from high interest rates and should be considered when paying down significant chunks of debt.
“Transferring existing balances to a card with a 0% introductory APR can provide a breather to aggressively pay down debt without accruing additional interest,” said a rep for In Harmony with Money, adding to “be mindful of transfer fees and the duration of the promotional period.”
Debt Management Planning (Credit Counseling)
Credit counseling firms can explore debt management plans with you — helping you, ideally, to get lower interest rates on credit cards.
“The credit counseling firm maintains agreements with credit card issuers whereby the issuer lowers the interest rate on a consumer’s credit card to a set percent,” Fox said. “Consumers also pay the credit counseling firm a monthly fee for the service. In these plans, the credit counseling firm also receives payments (called ‘fair-share’ payments) from the credit card issuers.”
Ask For a Lower Interest Rate
You can call your credit card issuers directly and ask for a lower rate. It can’t hurt to try!
“If the consumer has a good track record of payment, and can explain why they are asking for the lower rate, the card issuer may agree,” Fox said. “Some people have experienced hardships, for example. Consumers considering this route should make sure to prepare for any discussion by checking credit reports and scores and knowing current balances, terms and due dates.”
Debt Resolution (Settlement)
This one isn’t for everyone, but can make sense if your debt is severe and you’re truly struggling to get by.
“If your situation is such that you’re really struggling to make required minimum payments, resolution could be a solution,” Fox said. “Most debt settlement candidates also have dealt with financial hardship (such as loss of a job, major medical expenses or divorce). Debt resolution companies are regulated by the Federal Trade Commission, and work on the consumer’s behalf to lower principal balances.”
How To Go Debt-Free This Christmas
While taking action to destroy past debt this holiday season, you should also be avidly exploring ways to prevent taking on new debt. Here’s how to do that.
Embrace Financial Realism
As much as society, and, in particular, retailers, try to tell you otherwise, the holidays are about making memories and expressing love to those you value most. Don’t break your budgeting rules for the sake of a splurge.
“Holidays are about joy, not extravagance,” said Jay Avigdor, CEO and president of Velocity Capital Group. “It’s crucial to align your spending with your budget. Plan your purchases with care, distinguishing between wants and needs. This approach helps in avoiding financial strain and keeping debts at bay.”
Be Super Wary of Credit Cards
Credit cards make spending all too easy. Don’t fall for the illusion that a big credit line is the same as a stash of free and clear cash.
“Credit cards are a double-edged sword,” Avigdor said. “While they offer convenience, their misuse can lead to a debt spiral. Be judicious in using credit, preferring cash or debit where possible. If you do use credit, consider opting for payment plans that make repayment manageable and less overwhelming.”
Leverage Credit Card Points
So, yes, you don’t want to get too credit card happy; that said, you also don’t want to miss out on clear opportunities to embrace the perks of credit cards, if and when they can be smartly scaled.
“Credit cards, when used wisely, can be powerful financial tools,” Avigdor said. “Pay off balances promptly to avoid interest and leverage credit card points for business or personal purchases.”
DIY Gifts Wherever Possible
They say it’s the thought that counts, and they’re not wrong. When possible and if physically able, get crafty with your gifts rather than spendy.
“Instead of assembling a pile of purchased presents, consider if it’s possible to make something,” said Fox. “Maybe you can knit, bake or do woodworking. Maybe you can create a fun video for family members on your phone. To help those in need, perhaps you could knit hats for the troops or sew blankets for babies at the local hospital (call and see what’s needed). For service providers, maybe a gift of (safe) baked goods or a small gift certificate could work. Remember it’s about showing your heartfelt appreciation, not about going into debt.”
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