In 2020, due to the economic crisis caused by the Pandemic, many have experienced financial hardships with debt problems. As a result, the common people have also faced financial issues, more than any other year, while shopping during the last holiday season.
In our country, shoppers on average spend $1,047.83 per year both physical stores and online combined. As per a report by the National Retail Federation’s annual survey, the number has increased by 4% in 2019 compared with 2018.
People don’t think about the problem they may face in the coming months after the holiday season ends. They might use their credit cards freely while shopping, but forget how much it may hurt them financially when the huge bill comes to the doorstep. To handle this situation they need to come up with a predetermined plan that can help them to tackle that financial pressure and pay off holiday debt faster.
A survey, conducted by New York-based Union Bank, revealed that 2 out of 3 shoppers usually prepare a holiday shopping budget every year before they start shopping. By doing this they can save a good amount every year which they use to make debt payments. But 1/3 of shoppers do not follow this strategy and take more than six months to repay their holiday credit card debt.
So, it is wise to arrange some funds before the holiday season comes. Making a proper shopping budget and sticking to it can help a person to reduce holiday debt. Decide how much you should save for the holidays next year, divide by your number of months to pay, and direct deposit that amount into a separate savings account.
Now, since you’ve already stepped in the new year 2021, you might be thinking about how to deal with the holiday credit card debt that you have already incurred?
Best tips to pay off your holiday debt within 6 months
Be practical! By the end of January, 2021 you will be getting your credit card bills at your doorsteps. So, you have to come up with a strategy that may help you to pay off those bills within 6 months, approximately within June to July, 2021.
Do not worry! Here are 10 tips to pay off your holiday debt within such a period.
1. Get a Part-Time Job
Let me get this straight! If you have limited income or facing financial hardship due to the pandemic situation, then paying off holiday debt can be difficult for you. Maintaining the household budget properly is impossible along with paying off debts. So, you need a side job now for a few months so that you can earn a few extra dollars. That additional income might help you to pay off the debts much faster and to avoid any late payment penalties.
You may try any side hustle you prefer. Make sure the earnings are good and you are getting the money on time; unless it won’t help you to manage your credit cards within the next 6 month period.
2. Cut back extra expenses
You might have increased your income by initiating side hustles, but it won’t help you unless you start reducing your expenses. It is required to cut back costs as much as possible for paying off holiday credit card debt. It is wise to stop using the credit cards for the next 6 months, until you pay off all the outstanding balances, if possible. Save as much as possible from your daily expenses and use that money to pay off credit card bills one by one.
Initially, you may start with the minimum balance payment in each of the credit card accounts. Then gradually you may cut back unnecessary costs, save money, and use that amount to pay off the credit card balances. This way you may become debt free within the next 6 months.
3. Prepare a list of your debts
Now, once you have a decent income rolling, you must start with making a list of all your outstanding debts. You need to analyze how much you need to pay as a monthly payment and the interest rate.
If you know your debts well, then only you can develop the most effective repayment strategy and pay off holiday debts faster.
4. Negotiate with your credit card provider
It is required to contact your credit card provider and negotiate the repayment terms. Negotiate with them to check if you qualify for a lower interest rate. If the credit card company allows you a lower interest rate, the overall credit card bill will also get lower. If you have a good payment history and a decent credit score, you can surely have a chance at a better rate. So, check these two things beforehand to see where you stand.
5. Use a suitable DIY debt repayment method
There are two initial DIY debt repayment methods that you may opt for, a) the debt avalanche method and b) the debt snowball method.
In the debt avalanche method, you may list all your credit card debts according to the rate of interest, from high to low. This strategy will help you to get rid of the high interest credit debts first, and save you the most in the long run, along with providing debt relief fast.
Through the debt snowball method, you can tackle small credit card debts first. This strategy will help you to get rid of debt accounts faster, but it won’t save you as much as the avalanche method does.
Now it is up to you which of these two strategies you would choose to get rid of debts, after considering your financial condition. Usually if you want to get out of holiday credit card debt within 6 months, you may choose the debt snowball method.
6. Get a balance transfer card
This is one of the best ways to consolidate credit card debts on your own. The credit card providers may ask you for credit scores of 670 or higher to offer a good balance transferred card.
A balance transfer card with a 0% introductory APR may help you to pay off your credit balances without incurring additional interest charges. That lowers the overall cost of your debt and helps you get rid of it faster.
For example – If you transfer $1,200 in holiday debt to a 0% APR card with a 12-month introductory offer, you just need to pay $200 a month to get out of holiday debt within 6 months once and for all.
THe best thing about using a balance transfer method is you can avoid paying interest on an 0% balance transfer card for 12 months. That gives you one year to pay off all your credit debts in a less stressful way.
But remember, some credit card providers may also charge an upfront transfer fee.
7. Take out a debt consolidation loan
Consolidating your credit card debt with a low-interest loan can be one of the most effective ways to get out of holiday debts. If you have a good credit score, you may opt for a low-interest personal loan and pay off all your credit card bills at once.
Using this method you may save money from interest payments as the credit card interest rates are normally way higher than the personal loan interest rates.
To get rid of this current debt faster, you may negotiate with your lender and fix a repayment amount so that you may pay off that personal loan within 6 months, without facing any financial hassle.
8. Take professional help
If you are facing difficulties with paying off your credit card debts, you may take help from a professional credit counselor. A credit counselor can also help you find the best strategy for paying off your current holiday debts, and also help you to save bigger for the holidays next year.
Apart from that, if you can’t afford your debt payments at all, you may choose the debt consolidation option to consolidate your debts within 6 month’s period. If you have a comparatively lower debt amount, then you may try to settle your debts via credit card debt settlement option. Usually,you can settle debts faster though your credit score may reduce a bit. So, think carefully and choose your debt repayment option.
9. Tap into your emergency fund
If you have saved 3-6 months’ worth of expenses as an emergency fund, you may use that money to cover your outstanding holiday credit card debt. But it is suggested that you do not use emergency funds initially. First, use money from your paycheck to make debt payments. If you still can’t handle outstanding credit card bills, then you may withdraw money from your emergency fund, and make payments to the credit card bills.
Make sure to reestablish the emergency funds within the next 6 months. That way you’ll have your emergency funds ready in case you need urgent money any time in the future.
10. Use next year’s tax refund
If you normally receive a good tax refund from the IRS, you can use that money this year to pay off all of your holiday credit card debts. Many people rely on their tax refund to pay off their expenses from the holidays.
Tax refunds are normally issued in February. In 2019, 44% of total refunds were made in February. By the end of March, 65% of refunds were made previously. So, if you have the chance to get a large tax refund this year, you may wait till February.