The holidays may be a time of giving and good cheer, but all the gift and food shopping can put a real dent in your wallet. A recent survey shows that of the 36% of people in the U.S. who say they’re now in holiday debt, roughly 89% used a credit card to buy purchases, taking on an average of $1,181. With the average credit card interest rate still high at 20.30% as of December, paying down debt effectively is critical.
If you’re resolved to pay down your debt this year, here are five tips to get you started.
1. Know what you owe
Facing how much you owe is the first step to making a plan. Gather all your finances and calculate all your debts (as well as interest) so you can start budgeting.
2. Plan your budget
Without a good budget, it’ll be hard to manage your repayment. Start by seeing what you can cut back on. Having a budget system in place can also be helpful. While there are several methods, the 50/30/20 rule says to put 50% toward your monthly expenses (gas, groceries, mortgage, rent), 30% toward recreation and entertainment, and 20% toward savings and paying down debt. There are an array of budgeting apps that can also help you track your expenses, so read reviews and find the right one for you.
3. Pay down your highest interest rate card first
While there are different repayment methods, the debt avalanche requires you to prioritize your highest interest rate card first. This is especially important given high credit card interest rates. This works by paying the minimum payment on your credit cards and applying the leftover amount to the card with the highest interest rate. When that’s paid off, you move on to the next card with a high interest rate.
4. Make more money
While this may be easier said than done, looking for freelance work or a weekend job can help you pay your debt more efficiently. If you were given any money over the holidays, applying that to your repayment can also help you see results more quickly.
5. Try credit counseling
When you meet with a credit counselor through a certified credit counseling agency, they’ll help you plan a budget and set financial goals. They can also help you enroll in a debt management program (DMP), which can help you pay off your debt in three to five years. Through a DMP, your counselor can work with your credit card company to get your interest rate reduced and your debt consolidated into one payment, making it easier to manage and pay off.
By following these tips, paying off holiday debt can be more efficient, making it less overwhelming as you get on track for a more financially healthy year.
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