Need to pay off holiday debt? Here’s how to do it
Written by
Writer, Fox Money
Tara Mastroeni has over a decade of experience covering personal finance and is a real estate and mortgage expert. Tara's byline has been featured by Forbes, The Balance, Business Insider, and Yahoo News.
Updated October 16, 2024, 2:46 AM EDT
Each year, holiday spending makes a huge dent in American’s wallets. In fact, in 2020, shoppers spent an astounding $789.4 billion on retail sales during the holiday season, according to the National Retail Federation. And much of that spending was done with a credit card.
4 steps to pay off your debt
Luckily, there are things you can do to pay off your balance Here are four steps you should take today.
- Get the full picture
- Incorporate payments into your monthly budget
- Automate your payments
- Look into low-interest financing options
1. Get the full picture
"The first thing you want to do is gather all your debt together," said Molly Ford-Coates, an accredited financial counselor and the founder of Ford Financial Management. "It can be difficult to face, but when you have a clear picture, you can assess your debt and come up with a payment plan to combat it."
As far as what you should gather, start by collecting any account statements and credit reports. Once you have everything in hand, be sure to add up all of your existing account balances. Don’t just stop at credit card debt either. The key to improving your financial situation is zeroing in on the total amount that you owe, no matter how many forms of debt it comes in.
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2. Incorporate payments into your monthly budget
Next, Ford-Coates recommended taking a closer look at your budget ”You’ll want to decide how much money you have to allocate to this debt,” she said. “This is a personal decision, but generally, the quicker you want to pay off the money owed, the more you should plan to put towards regular debt payments.”
Once you’ve decided how much money you can afford to put towards your debts each month, divide that number by the total amount of debt that you owe. The answer you receive will tell you how many months it will take before you’ll officially be debt-free.
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3. Automate your payments
Whether your debt comes in the form of an installment loan or a line of credit, setting up automatic payments can be a powerful financial tool to help you avoid debt collection. After all, the debt collector cannot come calling as long as you continue to make at least your minimum monthly payment.
However, to avoid the temptation to put less toward your balances, Ford-Coates suggested automating payments that reflect the full amount that you set aside in your monthly budget. “Whether you choose to make your payment in full each payday or break your payment up into multiple, smaller allotments, keep consistent. It will pay off in the end,” she promised.
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4. Look into low-interest financing options
Lastly, once you’ve paid off your existing debt, Ford-Coates recommended utilizing low-interest financing options in the future. One option is to open up a balance transfer credit card. These credit cards offer an introductory period where you can spend on the card without racking up interest charges.
However, if you’re going to go this route, she noted that it's also important to have a plan for how you intend to pay the card off. “If you do not have to pay interest for a set period of time, make sure you have the ability to pay off that loan within that time," she cautioned. “If you don’t, the amount you’ll have to pay in interest can be extremely high.”
Another consideration with balance transfer cards is that they are typically only available to those with good or excellent credit. If your credit is not in the best shape, it may be wise to consider a personal loan instead. While you will be charged some interest with a personal loan, the rates are often lower than those offered on credit cards.
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The bottom line
At the end of the day, if you're having trouble managing debt on your own, it may make sense to seek professional advice in the form of credit counseling. Many counseling agencies can help you zero in on the debt relief options that will work best for you. With their help, you should be able to get your personal finance habits in great shape.