The holidays may be fun while they last, but the overall financial impact of the season tends to linger in ways that aren’t so cheery. A late found that the average consumer added $1,054 to their credit cards during last year’s holiday shopping season. It remains to be seen whether this year’s debt totals will be better or worse, but I’m willing to bet plenty of people are starting a new year mired in regret.
Whether you owe a few hundred bucks on your credit cards or several thousand, you’re certainly not alone in your struggles. The average American household with credit card debt carried $6,929 on their cards in late 2018, after all, and the total credit card debt carried on the backs of American families is now .
It doesn’t matter if you owe holiday debt or ran up your credit cards paying for car repairs or medical expenses: Either way, you probably have the same sinking feeling as most people in your situation. You know deep down that your debt problem could get worse before it gets better, and that ignoring it won’t make it go away.
Five Ways to Pay Down Debt in the New Year
But a new year always brings new possibilities. If you could make a few changes — both big and small — you could make 2019 the year you turn your finances around and get out of debt once and for all.
It won’t be easy to make sweeping changes to your finances in a short amount of time. However, digging your way out of debt now is a better option than waiting to see how bad things could get. Here are the steps to consider as you try to destroy holiday debt and other credit card debt for good.
Start using a monthly budget right now.
According to a , only 41% of Americans are using a monthly budget or spending plan. This means that less than half of Americans are tracking their spending in any meaningful way, setting spending caps in discretionary categories like groceries and entertainment, and keeping track of their financial progress as they go along.
No wonder American household finances are a mess, retirement savings figures are wanting, and average debt seems to increase every year. By and large, families have no idea where their money disappears to each month and they aren’t using a budget to find out!
The solution to this problem is an obvious, albeit difficult, one. If you want to get out of debt, it’s smart to implement some sort of monthly budget or spending plan you can use to reduce your outlay and oversee your financial progress.
One popular budgeting method that works well for debt repayment is the zero-sum budget. This type of budget requires you to assign each dollar you earn to a bill, debt repayment, or savings every month until you get down to zero. Zero sum-budgeting allows you to reduce wasteful spending while allocating your dollars in a way that fits your priorities. However, it also forces you to be proactive with your finances instead of letting life’s ups and downs dictate how your money is spent.
If you don’t like the idea of using a zero-sum budget, there are plenty of other budgeting methods to consider as well. The point is, you must try something to get your monthly spending in check and your finances on track. A budget is a valuable tool that can help you do just that, but it won’t work until you get started.
Stop using credit cards.
This second step is one you should follow no matter what — stop using your credit cards until you’ve paid them off. Continuing to use credit when you’re in debt only ensures you’ll keep adding to the pile, whereas switching to debit or cash spending will help you stop the bleeding so you’re not making your debt worse every month.
You don’t have to cut your credit cards up, but you should absolutely tuck them away in a drawer or a closet for safe-keeping until you get your debt under control.
Consider transferring a balance.
While you shouldn’t use credit for regular purchases while trying to get out of debt, one type of credit card may make the process easier if used the correct way. Balance transfer cards, also known as 0% APR credit cards, let you avoid paying interest on transferred balances for up to 21 months. Most charge a one-time balance transfer fee of 3% to 5%, but the fee can be well worth it if you’re transferring debts from credit cards with high interest rates.
Once again, however, you have to stop using credit for purchases to make a balance transfer work. Apply for a balance transfer card, transfer your high-interest balances, and then tuck your card away for safekeeping. From there, attack your debts with fervor and watch every dollar go directly toward your balance since you’re not paying any interest.
If you put in the work and throw as much money toward your debts as possible during your card’s zero-interest introductory offer, you will save money and make substantial progress in a short amount of time.
Consolidate debt with a personal loan.
If you’re skittish about using another credit card to get out of debt, there’s another option you can consider — a low rate personal loan. With a personal loan, you can secure a fixed interest rate, a fixed monthly payment, and a fixed repayment term so you know exactly when you’ll become debt-free.
And while you won’t get 0% APR for a limited time like you would with a balance transfer card, personal loans do come with fixed rates as low as 4.5%, depending on your creditworthiness — certainly better than the of 17.41%. What’s more, credit scoring models view installment loans more favorably than credit card balances.
If you opted to consolidate debt with a personal loan, you could use your loan funds to pay off credit cards at higher rates, stick with the predetermined payment plan your loan offers, save money on interest, and eventually become debt-free. To make this option work, however, you’d still need to stop using credit cards altogether.
Earn more money.
Another strategy that works well with any other step on this list is trying to earn more money. Obviously, earning more can help you pay down debt faster and save money on interest charges in one fell swoop.
Fortunately, there are all sorts of ways you could potentially boost your income this year. You could ask for more hours at work, pick up overtime shifts, or take on a part-time job outside of your regular work hours. You could also pick up a side hustle like driving for Uber or Lyft, walking dogs, or delivering groceries for Instacart.
When it comes to ways you could be earning money on the side, the sky is the limit. Just make sure that any extra money you earn is thrown towards debts before you have a chance to spend it.
The Bottom Line
If holiday debt is dragging you down, now is the perfect time to attack it head on. Create a monthly budget that can help you rein in your spending and look for ways to pay down debt faster. With enough smart moves, you may end the year a lot better off than where you started.
Holly Johnson is an award-winning personal finance writer and the author of . Johnson shares her obsession with frugality, budgeting, and travel at .
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