6 Powerful Tips for Paying Down Holiday Debt
(Posted on Apr 05, 2021 By M.K.B)
Are you planning to go on holiday and spend quality time with your friends, family, or as a solo?
Okay, it undeniably keeps you relaxed and mentally fresh.
Most of the time, spending extra on items that are not necessary or buying the extra out from your budget, gives you new liabilities.
It can be the right purchase or spending depending upon the situation. But the next task that comes from this is to pay down the debt with a proper plan is important. When it comes to regular work it may push you under the pressure of debt.
Before jumping into some essential tips, let’s dig out the data from the holiday debt poll. More than half of cardholders carry credit card debt (57%) said they would add to it for the holidays, compared to 29% who don’t carry debt. Of that already in debt, 48% said the holidays justify taking on more, compared to 26% of cardholders who don’t have credit card debt.
Now, let’s talk about some important tips for paying down your holiday debt.
Here’re a few powerful tips to completely get rid of holiday debt completely
1. Organized your budget
The first step to getting rid of holiday debt is to start with your budget planning. Without knowing your income in and out you can't make a good budget plan. Alongside, make a list of all the expenses and income in one spreadsheet. Then add a list of owed money with the rate of interest and how much the debt is. Typing on the spreadsheet could be annoying; you can take the help of apps that are available on the play store and app store as well. Here is the list of apps.
● You Need a Budget (YNAB)
This way you will get a clear picture of your debts and know where you stand. Completion of budget planning you will get the idea of whether you have to cut the expenses or need to raise the monthly income. Avoiding any extra expenses from your budget plan will keep you on track. Adding all the small expenses and each penny of income into the budget will help you to make a good budget plan for successful execution.
2. Prioritize your debts
Once you finish the budget planning; now you have to list down the debts that have to be paid first to last, based on the higher rate of interest. It's called the “Avalanche Method''.
Higher rate of interest debt needs to be paid. This will help you to avoid paying extra money on interest. Bank or credit card company money to be paid first instead of paying the money to whom you have owed in cash.
After paying off the first debt, move to the next who has a high-interest rate. You have to ensure debt to be paid off before the due date otherwise penalty may be levied by the lender. The money you owed from the family members or friends you can pay off in the end or you can pay in breaks if it is agreed between them both.
Successfulness of each debt keeps you relaxed and motivated to wash off all your debts.
Some of the experts suggest using the “Snowball Method” in which the smaller of your debts pay first. Which definitely will not be avoided the extra interest rate charges but somehow will motivate you to achieve the next step swiftly. Thus, it is up to what suits you to end up in debt. Thereby, listing your priorities with affirmation will definitely end up with the victory.
3. Ask for a reduction in interest rate
Reduction in interest rate depends on your credit score. If you have a credit score above 700 you can ask for a new credit card to transfer your debts on a new card with a 0% rate of interest. A stronger credit score will strengthen your chances to get a credit card with a 0% rate of interest. During this pandemic, most people ask the lenders for a reduction in the rate of interest and they have got it. In some cases, lenders are ready to help you if you lost the source of income during the pandemic.
In case if you don’t have a credit score you can ask directly to the bank for a reduction in interest rate. Based on your previous credit score & the present income they can help you. If it doesn’t work, you can approach a personal loan if the rate of interest is lower to your debt interest rate. Considering all the options choose the best one which suits you or availed you for the interest rate reduction.
4. Pay more than the minimum
Paying more than the minimum is a good idea on your credit card. Asking to pay minimum is based on your total bill including the interest rate. When you pay minimum payments, you will definitely pay more in interest charges than when you pay your balance more than minimum payments. You may save hundreds or more dollars on your monthly interest rate.
For Instance, if you have a $2,000 balance, on a card with a 14% annual percentage rate, paying the minimum of $43.33 a month will cost $1,833 in interest charges and take more than 14 years to pay off. If you pay $100 a month and make no future charges, you'll only pay $291 in interest, saving more than $1,500 in interest. Your monthly debt will reduce as your balance is paid down with more than the minimum amount. So paying more than your minimum is one of the ways to get rid of owed money.
5. Use extra money wisely
The money which is coming into your account apart from your regular salary or income is called - extra money.
It can come from selling something or doing extra work. Sometimes you get these through coupons or in cash back offers when you go shopping.
Getting the extra money is like a bonus point for you when you have to pay holiday debts.
Now the important thing is when, where, how you will use this money.
● Proper utilization of extra money can help you to pay off the debts when it comes near to the deadline.
● It is required a wise approach whether you want to invest it to get the returns or keep saving for emergencies.
If you are going smoothly with your plan and extra money is no longer required. Then you can invest it in the market where you can get the profit which can cover the interest that you have paid on the debts.
Hence, spending the extra money after looking at all the risk factors is a good idea.
6. Get a part-time job
Doing a job during holidays is not at all a bad idea. There are a few jobs, which have flexible hours such as driving a cab with ride-sharing apps like Uber or Grab, babysitting, and snow removal. From choosing what service you would like to choose to when you can go to the job, you can create your schedules and opt for how much you want to earn.
No matter what, all you need to stick with the above-mentioned methods to get rid of the holiday debt as quickly as possible. Keep making all your minimum dues, so that you’ll keep your credits healthy and will be stress-free. The more dedicated to getting rid of your debts, the sooner you’ll meet your goals. Once you're debt-free, open a savings account or put money in if there is already in order not to repeat this debt cycle.