How to Pay Down Holiday Debt ASAP
Pulse racing? Head pounding? Anxiety starting to surface?
No, we’re not talking about the hangover you may or may not have woken up with on New Year’s Day morning, we’re talking about what you felt when you took a look at your recent credit card statement. You know, the one with all of your holiday purchases on it.
Even despite a shorter holiday shopping season from Thanksgiving falling later on the calendar in 2019, holiday sales increased about 3.5 percent this year compared to one year ago, while ecommerce sales increased to the tune of nearly 19 percent from the previous shopping season. If you followed this trend, it likely meant spending beyond your means. But now that the realization has set in, it’s important to not let this holiday debt linger, and for a few reasons:
Your holiday debt is likely revolving debt, that is debt that consumers aren’t obligated to pay off each month. In fact, credit card companies don’t want you to pay off your balance monthly because they earn more off you in interest the longer it takes for you to pay it off.
It could be hurting your credit score: Holiday debt could impact your credit utilization ratio, or your balance versus your total credit limit. Usually, you want to keep this at or below 30 percent for the best possible credit score. For example, if you have a credit card with a $10,000 limit, you want to have a balance at or under $3,000 for a better credit score.
Like we said above, it behooves you to settle any holiday debt you’ve accrued as quickly as possible. Here’s a look at some of the tips to help you get it done:
Reel in Spending
Simply paying the minimum amount on your credit card isn’t going to get the job done in the near-term, so we advise taking it easy in January so you can allocate more money toward your balance. Refrain from dining out, catch a movie on a streaming platform rather than go to the theater and skip the weekly after-work happy hour. Put what you save toward your debt balance.
Reduce Your 401K Contribution
If you’re contributing to a 401K each paycheck and you’re serious about paying down your debt quickly, we’d suggest temporarily decreasing your contribution and putting the excess money toward your debt. Just make sure that you’re disciplined enough to increase the contribution when you’ve paid off your holiday spending.
Combine Debts (if Applicable)
If you have debt on multiple credit cards, it may be worthwhile to look into combining it at a lower overall interest rate so that you just have one — rather than several — monthly payments to make each month. Doing so can offer a financial savings when it comes to the interest rate and make managing your debt payments much easier.
Reassess Monthly Spending
The new year is always a great time to reassess your monthly spending. Take stock of your expenditures and chart out what’s a necessity, what’s a luxury and what you don’t need anymore. Make sure you cut out anything that you don’t need anymore and think carefully about whether or not you need the “luxuries.” You might also shop around to see if you can save money on necessities like car insurance, homeowners insurance, cell phone plans, TV packages and more to see if there’s a better deal out there. When it comes to reducing monthly spending, it’s usually not just one thing, but several little things, that can make a big difference in the end.