How to Pay off Holiday Credit Card Debt

a woman drinking a hot beverage

There are more expectations placed on January first than any other day of the year. It’s the first day of new diets, new habits, new gym routines and new budgets. All those New Year’s resolutions come into effect now. 

Unfortunately, most of us are still so busy recovering from the holidays that we can’t truly kick off the new year. It’s easy to get buried by holiday debt—the combination of stress, obligations and deadlines can make it difficult to stick to a budget. According to MagnifyMoney, 44% of consumers reported taking on holiday debt in 2019.  

If you’re one of the many carrying debt from 2019 into 2020, here are a few ways you can work to pay it down.

1. Know What You Owe

The first thing you want to do is know exactly how much you owe, who you owe and when your payments are due. When dealing with credit card debt, it’s easy to feel overwhelmed and let it spiral out of control. The more organized you are, the less likely you are to overlook a bill and let it take you by surprise down the road. 

Once you know how much you owe, establish a timeline and a budget for yourself. 

There are also tracking tools you can use that measure your progress, like Mint, Pocket Guard or Credit.com (which are free). 

2. Pause On Using Your Credit Cards

While you’re working to pay off your credit card debt, pause on using your credit cards to make payments. If it’s going to take you months to pay off your credit card debt, you may think about switching any automatic payments charged to your credit card to another form of payment.

3. Prioritize the High-Interest Cards

Credit card debt is one of the most difficult types of debt because of its high interest rates. If you have debt across multiple credit cards, consider prioritizing the cards with the highest interest rates. A word of caution: once you’ve paid off the card, don’t close your account. Your credit utilization ratio—the amount of available credit to the amount of utilized credit—affects your overall credit score. If you close your credit accounts, it may negatively affect your credit score.

4. Make as Big of a Monthly Payment as You Can

How you break out your debt payment plan over the next few weeks or months will differ based on who you ask. Discover recommends breaking the overall debt into a four-month payment plan. In an article for the New York Times, different financial advisors recommended paying as large of a monthly payment as was possible, making bi-weekly payments or working to pay off debt within a 90-day time-frame. 

Regardless of which schedule you choose, most recommend that you determine a set amount of time for paying off your debt and then dedicate your resources to paying off as much of it as you can rather than making minimum monthly payments.

5. Take Advantage of Any Tax Returns, Holiday Gifts or Bonuses

Fortunately, the holidays aren’t just a time of giving. And although it’s not what you were hoping to spend your holiday money or bonus on, you could use your holiday windfall to pay off your debt. Tax returns are also just a few months away as well, and depending on the size of your return it could go a long way to paying off your debt.

a couple looking at information on a laptop

6. Consider a Balance Transfer

If you have a large amount of debt on a credit card with a high interest rate, you could transfer your balance to another card with a lower interest rate. 

Most credit cards offer a 0% APR introductory rate for a limited time (usually between 12 – 24 months). If you do decide to apply for a new balance transfer card, make sure you know exactly when the 0% APR introductory rate ends and that you will be able to pay down your debt prior to the end date. 

Keep in mind that some credit card companies don’t allow you to transfer balances between cards from the same issuer. A balance transfer will not directly affect your credit score, but if it affects your credit utilization ratio or if you miss a payment it can. 

7. Look into a Personal Loan

Personal loans are similar to a balance transfer in that you aren’t reducing your debt, you’re just moving it around. Interest rates on personal loans are usually cheaper than the interest rates on credit cards, and you can usually borrow more at once. Unlike a home equity line of credit—which you secure with your home—personal loans are typically an unsecured type of loan.  

If you have a large amount of debt, too much for a 0% APR credit card, you could consider a personal loan as a way of lowering interest rates and consolidating your debt. If you’re thinking of going the personal loan route, make sure to shop around. Different lenders will offer you different loans at different rates. 

8. Try Negotiating With Your Credit Card Company

If you’re buried by holiday credit card debt and aren’t able to make even your minimum monthly payments, try calling your credit card company and negotiating with them. In some instances, particularly if you have a good history as a borrower, they may offer you forbearance or a workout agreement—although there’s no guarantee that they will agree to negotiate with you at all. 

Negotiating with your credit card company should not negatively affect your credit score. Find out how your credit card company reports their workout plans so you are prepared for any negative impact on your credit.

9. Make a Plan for Avoiding Holiday Debt in 2021

Over 2020, you could prepare financially for the next holiday season by:

  • Saving up over the year for a holiday fund.
  • Making homemade gifts.
  • Buying gifts throughout the year. If you have a particular gift in mind, you could track when it goes on sale. Not only will this help you avoid the bulk payment of the holidays, but it will also make your holiday season a lot less stressful.

10. Seek Out Help

If you’re dealing with serious, overwhelming credit card debt, think about finding professional help. A financial advisor—or a non-profit credit counseling organization—will help you explore different options for managing and paying down your credit card debt. If you’re a student, veteran or a senior, you can find additional resources for paying down debt. 

If you are worried about the negative impact your holiday debt will have on your credit score, or if you find any inaccurate items listed on your credit report, consider reaching out to Lexington Law. 

Don’t Go Into Debt for the Holidays

Dedicate your holidays this next year to spending time with the people you care about rather than constantly worrying about how you’re going to pay for everything when it’s over. Make a resolution now to have a better holiday season this year and stay out of debt.