7 Ways to Tackle Holiday Debt
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Posted by: Walter Metzen
The holidays are over, and the bills are now rolling in.
According to Magnify Money, Americans racked up an average of $1,381 in debts during the record breaking 2020 shopping season.
It can take months or even years to pay that off on your credit cards.
If you have a card with a rate of 15.9% and make a minimum payment of $25 each month, for instance, you won’t be in the clear until 2027.
We all could use a little help after the holidays getting a jumpstart on our New Year’s resolutions. Let paying off your holiday debt — sooner — be one of them.
Let’s take a look at seven options to help you tackle holiday debt today.
1. Make a Budget — and Stick to It
You can’t reach a goal without planning. Write down all your debts and all your expenditures. Figure out priorities and what you are willing to give up to get out of debt more quickly. Look where you can trim some spending, but keep it realistic. If you cut down on everything you love, you probably won’t keep to your budget.
On the other hand, you may want to put a block on those shopping channels.
See also: Financial Planning for Beginners: What You Need to Know
2. Transfer Your Credit Card Debt
In order to influence you to change credit card companies, you’ll often extremely low or even no interest offers on competitors’ credit cards for an introductory period. If you think you can pay off your debt while the low rate is in effect, you may want to consider consolidating your debt onto a new card with low or no interest.
However, be sure you can pay everything off before the introductory period ends, or at the very least, be sure you can live with the normal rate on the card. If you consolidate debt and then keep charging up your now empty cards, or if you don’t pay off the debt during the introductory period and end up paying at a higher rate, then you can come out worse than you were before.
Also, be aware that many credit card companies charge a balance transfer fee. Balance transfers also aren’t for everyone. You must be very responsible with keeping up on your balances and redistributing your debt among lower rates to best benefit you, but also not have too low of a credit score or too many credit lines open to begin with to not give you that really nice rate.
3. Take out a Personal Loan
Speaking of good credit, if you have it, you may want to take out an unsecured personal loan with lower rates than your credit cards. Credit unions are often a good place to start when looking for good rates. This is a step to be used with caution, just like balance transfers, but when done properly can be a boon for your long-term financial health.
4. Get a Home Equity Loan
If you really got yourself into hot water and you own a home, you could use your home as security for a loan to pay off your credit card debt. You’ll get an interest rate that’s lower than an unsecured personal loan, but you will also be putting your home at risk. If something happens and you can’t make your payments, you may end up forfeiting your house.
See also: What is the Difference Between Surrendering a Home and Foreclosure?
5. Consider a 401(k) Loan
We don’t really recommend this, but you could take out a loan on your 401(k). It won’t show up on your credit report, you may be sorry you did it when you retire — particularly if you own a home and are starting to use retirement funds to save it.
See also: Planning for Retirement: What Women Should Consider
6. Contact a Non-Profit Consumer Credit Counselor
Non-profit credit counseling organizations offer help to those who are floundering in debt and want to get themselves out. They pay your creditors, and you make one payment to them. You may need to close your credit cards once they are paid if you go with this option.
Don’t confuse non-profit consumer credit counselors with debt management companies. Unscrupulous debt management companies often prey on desperate people in financial trouble. They may take your money and hold it in escrow but never pay your creditors. This can ruin your credit score as your accounts become delinquent.
7. Consult with a Bankruptcy Attorney
It’s unlikely that one extravagant holiday season will drive you to bankruptcy, but if everything has piled up and you see no other way out, it is an option — and a very good option at that for some people. If you are even thinking about bankruptcy in passing, you’ll want to consult with a qualified bankruptcy lawyer. He or she may be able to help you to avoid bankruptcy, but if not, guide you completely through this complex process.
Although a bankruptcy stays on your credit report for a number of years, if you have loads of medical debt, credit card debt, or are facing a foreclosure or collection lawsuit, bankruptcy can help you pay pennies on the dollar for your debt and help stop those legal actions. For more information about bankruptcy and how it may be helpful to consumers, check out the following blog posts: Bankruptcy Basics.
How to Avoid Holiday Debt Next Year
That all said, it’s likely that the average spend on holiday shopping is only going to go up. Businesses want our eyes, our ears and our money, and they’ll use whatever creative advertising strategies they have to get us in the doors (or online) to shop and spend.
We all want to enjoy the holidays. The best way to do that is to make a plan in advance and budget extra for holiday spending throughout the year. Decide how much you will spend and on what, then don’t let yourself be tempted by impulse buys. That way, it’s possible to enjoy the holidays without putting yourself into a tight financial situation for months — or years — to come.
Walter Metzen is a Board Certified Specialist in Consumer Bankruptcy with over 28 years of experience. He’s represented more than 20,000 bankruptcy clients in and around Detroit where his firm is located. View his profile here.
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