A new year can be an exciting time to tackle new goals and plan for the future. But if you wracked up any holiday debt this past season it could mean putting those plans on hold until you make a plan to eliminate your debt.
The good news is you’re not alone—and there are plenty of options for making your debt more manageable.
Sky-high inflation didn’t stop Americans from spending during the holidays
Many Americans didn’t alter their spending habits to account for rising costs. Consumers spent $211.7 billion online over the 2022 holiday season (from November 1 to December 31), growing 3.5% year over year according to a recent report from Adobe Analytics.
Consumers who turned to plastic to cover their holiday costs could face steep charges.
The average credit card balance is just over $5,000 for most Americans, according to Experian and in 2022 credit card interest rates hit over 19% according to the Fed’s most recent report on consumer credit. For big spenders who haven’t made a plan to tackle their balance, mounting interest charges and fees could make their debt increasingly difficult to wipe out.
4 ways to eliminate your holiday debt
Tackling your holiday debt can feel overwhelming, but it doesn’t have to be. It all starts with you making a plan. The only way to choose the best strategy for wiping out your debt is to first figure out how much you owe.
Organize your debt by combing through your bank statements to figure out how much you spent on holiday gifts, events, travel, and more. If you used one payment method, like a credit card, for all of your spending this should be relatively simple.
You should also pay close attention to your interest rates. Prioritizing repayment of your higher-interest credit cards or loans can help you shorten your repayment timeline by reducing how much you’ll pay in interest over time.
There are several ways you can opt to eliminate your debt. The right strategy will depend on your balance, your budget, and your timeline. A few options you might consider:
1. Apply for a balance transfer card
A balance transfer is when you move your balance from one credit card to another offering a lower or 0% annual percentage rate (APR) for a set period of time, usually six months to up to two years.
The Citi® Double Cash Card, for example, offers an intro 0% balance transfer APR for up to 18 months from account opening on qualifying balance transfers—and a $0 annual fee. For consumers who hope to chip away at their debt more efficiently, making payments throughout the interest free period or paying off debt entirely during those months can help them save and hit a zero balance faster. Although—good to excellent credit is required for this card.
“Generally, a balance transfer card, or taking advantage of a 0% intro APR, is useful for individuals that are paying down debts with high interest rates,” says Rachana Bhatt, executive vice president of credit card, unsecured lending, and retail lending distribution at PNC Bank. “However, some lenders have balance transfer fees, and sometimes you’re not able to transfer a full balance if the card’s limit is low. Also, I’d recommend that consumers pay attention to the APR at the end of a promotional term, too.”
2. Trim your expenses and make room in your budget
If your credit score isn’t where you want it to be, you could aim to reduce your debt by allocating more toward your debt payments and less toward other categories like spending on entertainment or travel.
If you don’t already have a budget, consider creating one to help you keep better track of where your dollars are going and how you might be able to put them to better use.
“Although it’s easier said than done, a way to tackle debt aggressively is by switching your household to a “needs-based” budget strategy,” says Bhatt. “This means your household cuts back on every unnecessary expense that’s included within the budget. By eliminating things like streaming services, unnecessary subscriptions, delivery service or dining out, you could potentially save money that can be used to pay down your debt.”
3. Consider a personal loan
The average interest rate on a personal loan stands at just over 10%. While this can still add up over time, it’s almost half the average interest rate for most credit cards. Shop around to see if you qualify for a low-interest personal loan that can help you save a little extra on interest while you work to repay your loan.
4. Ask your credit card issuer to lower your interest rate
Paying off debt can be made a lot more manageable by reducing your credit card APR. The good news: many lenders are willing to work with cardholders who are having a hard time making payments due to steep interest charges. Give your credit card company a call and see if they might reduce your interest rate, even if only for a short time. There’s no guarantee they’ll agree to lower your APR, but it’s certainly worth asking.
“Don’t wait until it’s too late,” says Bhatt. “Be proactive and stay in contact with your creditor or lender. They may be able to help and offer additional resources or repayment options.”
Eliminating your holiday debt as soon as possible can help you hit the ground running in 2023 and check off some of your other financial resolutions. Keep a close eye on your balances and interest rates, try to put any extra funds toward your debt, and start planning for the 2023 holiday season by creating a holiday budget and putting a little away each month starting now.