6 Easy Ways to Pay off Holiday Debt
The holidays are a wonderful time of the year, until the bills come rolling in just as you’re ringing in the new year. One look at your credit card bill can certainly put a damper on all the happy memories you just made a few weeks days ago.
But you can take solace in the fact that you're not alone. According to a Magnify Money survey, the average American racked up an average debt of $1,381 in 2020—a six-year high. More than half of those that borrowed money used credit cards to rack up the debt.
That means that, at the current, average credit card interest rate of about 16%, it would take nearly 12 years to pay off that balance if only making the minimum payments. What’s worse, it would cost you a whopping $1,300.87 in interest while paying off that debt.
If this sounds less than appealing, take heart in these six ways you can get your holiday debt cleared down in less time.
Form a Payoff Plan
The first step to kicking holiday debt to the curb is creating a debt paydown plan. Don't ignore that figure on your credit card bill; instead, tackle it head-on. Here's how:
First, start by making a list of each debt, including the balance, interest rate, minimum payment, and due date. If the thought of creating a spreadsheet is too overwhelming, try one of these free debt-reduction spreadsheets to help you get started.
Getting all of this organized will make it easier to tackle your next step: Choosing a payoff strategy like the debt snowball or debt avalanche methods.
Try the Debt Snowball Method
The debt snowball method focuses on paying off your smallest debts first while making minimum payments on the others. As you advance through the process, you pay off one debt at a time. After one debt is paid, you use that money to put toward your next debt and so on, creating a snowball of payments. This method works well for many because it keeps you motivated as you work first with smaller wins, advancing your way toward paying off the higher debts.
Employ the Debt Avalanche
The debt avalanche method focuses on interest rates rather than total debt. With this method, you work your debt from the highest to the lowest interest rates. By paying off your highest interest rates first, you can save more money over time.
Either of these methods (snowball or avalanche) works great. Just choose the one that sounds best for you because the best method is the one you can stick with to achieve your financial goals.
Trim Your Monthly Bills
Another way to pay off your bills that can work in conjunction with the snowball or avalanche is to free up extra money by reviewing your monthly bills.
For example, while utility bills tend to be more costly in the peak of winter and summer, there are a number of ways you can look into to lower your heating bill or other utilities.
Another painless way to save is to unplug your unused electronics. Keeping things unplugged can save you up to $200 per year. Think of unplugging devices such as your coffee maker, toaster oven, hairdryer, phones, laptops, and space heaters when not in use.
You can also check your insurance policies for savings opportunities. A recent Consumer Reports survey found 62% of those who switched car insurance providers saved money. You might be able to save on premiums by increasing deductibles without changing the underlying coverage.
Also take a look at all those subscriptions (such as Netflix, Sirius, Pandora, HBO, etc.) and apps that you may be paying for that you don't really use. Cancel any subscription services you don't really need. Remember, any money you save can be repurposed to pay down those holiday bills.
Find Cash in the Clutter
After the holidays pass, it may be time to embrace your inner Marie Kondo and declutter your home to earn some extra money. For example, if you received any new devices, consider selling the older versions online through eBay or Facebook Marketplace.
January is also the perfect time to declutter your closet. Chances are, there are plenty of like-new items of clothing, shoes, or accessories you could sell without ever stepping foot into a consignment store. Free mobile apps like Letgo make it easy to turn your unwanted goods into money you can then use to pay down your debt.
Use that Cash or Exchange Gifts and Gift Cards
Many people receive cash or gift cards for presents over the holidays. But, before you spend it on things you maybe don’t really need, consider using that money to pay for some of your holiday debt.
You can also turn gift cards into money through websites like CardCash. Although you may receive less than the face value, it could be a smart way to move the needle on your goals.
Don't hesitate to return any unwanted gifts. You can get money back for the present or receive a store credit, allowing you to use it for something you need more like groceries or school supplies. Then, funnel the extra cash you’d usually spend on those necessities toward your debt.
Use Your Tax Refund
With tax season approaching, you may receive a small windfall through your tax refund. The average tax refund in 2020 was nearly $3,000 – which could be enough to wipe out your holiday debt, or at least close to it!
The fastest way to receive your refund is by e-filing and signing up for direct deposit, and most filers receive their money in fewer than 21 days. You can keep tabs on the status of your refund with the Where’s My Refund? tool after you file.
Boost Income with Side Gigs
While the pandemic may have made some in-person side jobs more challenging to acquire, there are still plenty of ways to earn extra money in your free time. Here are some side hustle ideas to get you started.
You could also dig into some websites like Snagajob, which covers various local part-time gigs. You can even apply on-the-go through the company’s mobile app.
In addition, you can try promoting yourself to take on odd jobs, like shoveling snow, raking leaves, or cleaning gutters. Try posting your services in your neighborhood’s Facebook Group or through apps like Nextdoor.
Small Steps to Big Goals
Whether your holiday debt is a few hundred dollars or over a thousand, every extra dollar will get you closer to being debt-free.
If you’re feeling overwhelmed by multiple credit card payments, you may consider applying for an installment loan. You could consolidate your debt to one monthly payment, which can make paying down debt more manageable for you.
By staying focused and cutting costs, you might be able to get your debt under control sooner than you expect, with more money for other financial goals.