The holidays have past but if you managed to put all those holiday gifts on your credit card, you now need to figure out the best way to pay it off. With the average shopper spending upwards of $900 on gifts, paying this off should be top of your resolution list.
There are tons of offers circulating for these types of transfers. Just be sure to calculate the numbers. See what your current interest rate is and see how much interest you would pay over the next 12 or 24 months. You then want to see how that number compares to the amount you would pay for the balance transfer. Most credit card companies charge a fee of 3% of the total that you are transferring.
The next thing you want to look at is how long you will be receiving that 0 percent offer for and what the rate will change to once that period is over. Keep in mind when you see "rates as low as" that does not guarantee you that number. The lowest rates are always reserved for those that have excellent credit. Prior to making any changes, it is worth it to give your current credit card company a call and ask if they would lower your rate. If you do end up doing a balance transfer, make sure you make your payments on time. Depending on the credit card terms, if you pay late, they might cancel out the deal.
Most people don't have just one credit card with a balance, so you need to come up with the right plan to pay them down. Typically, it is suggested that you pay off the card with the highest interest rate first. With that being said, many people struggle when it comes to staying motivated to pay down their debt. For this reason, working to pay off your smaller debts first may be a good strategy. Seeing a zero balance gives you a sense of accomplishment and people tend to stay committed. If you have willpower, then it is a a good idea to pay down the highest interest rate in full first since you will save the most money. Whatever approach is right for you, make sure you are making your payments on time every month and that you always try and pay more than the minimum.
If you are really going to make a dent in paying off your credit card debt, you need to make a detailed monthly budget if you don't already have one. This will help you pinpoint areas where you can cut back on spending. You want to not only focus on the small expenses (i.e. cutting out that daily Starbucks trip) but also the bigger ones like housing and transportation. Looking for cheaper car insurance and ways to cut down your electric bill will get you where you want to be much faster.
The good thing about credit card companies is you can usually send in as many payments as you want per month. You will end up paying less in interest over time since interest is calculated based on the account’s average daily balance. This is a good strategy to use along with cutting down on your spending. If you skip dinner out, you can put that money towards paying off your debt. $50 bucks may not seem like much that first month but it will certainly help you pay down your debt faster.
Side gigs are everywhere these days. From running errands to becoming an Uber driver, if you are willing to put in some overtime, you can definitely find something to earn some extra bucks to help pay down your debt.
If you have a rewards credit card and you have been racking up points all year, check to see where you are at. You may have some available money that you can transfer over to help bring down your balance. You might be tempted to continue to let them build so you can put them toward something more exciting like a vacation, but every month you carry a balance, those points are really just being lost to interest anyway.
When you carry a lot of debt or you have a habit of missing your payments, your credit score can really take a hit. To put it in perspective, if you pay off large amounts of credit, your score improves almost immediately. If you miss a payment, that can take seven years to make it off your credit report. Avoid this by setting up your monthly payments on auto-pay.
Selling any items you don't use is another great tactic for making some money you can put towards your holiday debt. This can be anything from presents you never used, gently used toys, electronics, clothing etc. Once you have some things to sell, post them on Craigslist or another retail website you feel comfortable using. There are also phone apps for buying and selling used stuff that are worth checking out.
Tax refund time can be exciting with all the possibilities of what you can do with the money. But if you are carrying around holiday debt, this is where that money should go. Not as exciting as a new wardrobe or whatever else you had in mind, but not having debt looming over your head will feel much better.
If you were lucky enough to receive a bonus for the holidays, make it work for you by also putting this towards your holiday debt. Forget about the vacation or any other purchases. You will thank yourself.
Once you have managed to pay off your holiday debt, you will be able to focus putting that extra money towards other financial goals like building you retirement nest egg, an emergency fund, a vacation or even for a down payment for a house. In order to make this a reality, you need to make sure you are setting up a personal budget and bringing down your expenses. By doing this, you will be in a better position to keep yourself debt free when the holidays come around next year!