Let’s face it: The holidays may be about spending time with the people you love, but that doesn’t mean things come cheap. In fact, more than half of gift-givers are feeling pressure this holiday season. If that’s you, the post-holiday season is the perfect time to focus on tackling gift-related debt.
“You should absolutely make paying off debt a major priority,” says Matt Schulz, LendingTree chief credit analyst. “Interest rates are sky-high and are likely to grow in the near future. That means that your debt is only going to get more and more expensive unless you take action.”
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Here are five tips to help you get it done.
Post-holiday tips to pay off debt
No. 1: Choose your payoff method wisely
When paying off debt, it pays to be strategic. There are two common methods you may want to consider: debt avalanche and debt snowball.
“The best debt payoff method for you is the one that you’re most likely to stick with,” Schulz says. “If you’re simply all about the math and paying down the debt with as little interest paid as possible, go with the avalanche. If you’d prefer to pick up a few quick, early wins to get you fired up, pick the snowball method. Either one is fine. It’s all about knowing yourself and what works best for you. Personally, I’m an avalanche guy, but I totally see the appeal of the snowball.”
No. 2: Don’t forget about savings
Paying off debt can feel all-consuming. But it’s important to maintain your overall financial health as you attack that debt.
“One of the best ways to stop the cycle of debt is to have robust savings,” Schulz says. “If you don’t have that, the first unexpected expense after you pay off your credit card balance will just go right back on that card, and you’ll find yourself in debt yet again. Savings would allow you to pay cash to handle that surprise expense.”
No. 3: Consider a 0% balance transfer card
“There are few better weapons against holiday debt than a 0% balance transfer credit card,” Schulz says. “These cards are widely available if you have good credit, they can save you a ton of money in interest, and they can dramatically shorten the amount of time it takes to pay off your balance. In short, they’re a really big deal.”
You should know, however, that opening a new credit card may impact your credit score. And there may be a fee associated with a balance transfer (typically ranging from 3% to 5% of the transfer amount). To maximize the benefits, you’ll want to divide the total balance (including fees) by the promotional period to ensure you can pay it off before the 0% APR jumps to the usual rate.
No. 4: Look into a personal loan
“If you don’t want another credit card, you can consider a low-interest personal loan,” Schulz says. “You won’t find 0% offers like you would with a balance transfer card, but you can still find real savings.”
In general, you’ll want your credit score to be as high as possible to qualify for a personal loan. That way, you’ll get a lower interest rate. But there are still loan options for those with bad credit. Either way, it’s a good idea to use prequalification — which doesn’t impact credit — to check your chances of approval, and potential rates and fees. That way, you’ll be able to gauge if you’re likely to qualify and — if so — which company offers the best option for long-term savings.
No. 5: Ask your creditor for a lower rate
If you aren’t able to access a financial tool like a balance transfer card or personal loan, that doesn’t mean you don’t have options to pay off that debt faster and save money.
“Call your credit card issuer and ask them for a lower rate on your credit card,” Schulz says. “An April 2022 LendingTree study showed that 70% of people who asked for that in the past year got their way, but far too few people ask. It’s absolutely worth your time.”
If you can get that lower rate, stop charging things to that account and start contributing more than your minimum required payments, you’ll be on the fast track to getting out of debt. But, again, the key is perseverance.
This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.
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6 strategies for becoming debt free
It isn’t the $5 cups of coffee. Or the $50 a month for the gym.
It isn’t that new smartphone, or your shoe addiction, or even that pricey cable subscription. These are common things everyone likes to waggle their finger at when they talk about overspending. But it isn’t necessarily any one of those expenses that really gets people into debt.
It’s usually all of them. And then some.
According to the 2018 U.S. Financial Health Pulse survey by the Center for Financial Services Innovation, 46.5% of Americans said their spending equaled or exceeded their income in the past 12 months. 33.9% said they were unable to pay all their bills on time. And 29.5% said they had more debt than they could manage.
That’s a lot of people who are worried about money.
Though frivolous or impulsive spending can be part of the problem, the slide sometimes starts with the best of intentions — with the desire to get a college education, perhaps, or to own one’s own home.
According to Northwestern Mutual’s 2018 Planning and Progress Study, mortgages and student loans, along with credit cards, are among the leading sources of debt in the U.S.
And when the nonprofit organization Student Debt Crisis surveyed student loan borrowers in 2018, 86% said student debt is a major source of stress. Add in credit card payments, car payments, utility bills, groceries and gas, and all the other things — big and small — that take our money every single day, and it’s clear how debt can become a deep, dark hole.
Which is why it’s so important to have a plan to get back out.
If you’ve wanted to become debt-free for a while, but didn’t know how to get there, think of your plan as a rescue rope you can hold onto during the climb. Everyone’s situation is different, but here are some popular strategies you might consider on your journey to becoming debt-free.
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If you have a significant amount of debt to pay off, you’ll likely be looking to cut costs in a meaningful way. A budget can help with that. First, when you’re going through bills, it can help to determine your priorities, this information can assist you in making informed decisions about what can go and what should stay.
Later, it can create a feedback loop, as you (and your partner, spouse, or other family members) compare real-world spending to the numbers in the budget and consider whether to take corrective action to stay on track.
And over time, it also may be possible to uncover the behaviors that have been holding you back.
If the idea of bird-dogging every penny has been a barrier to budgeting, or if you’ve tried and failed in the past, it may help to keep the process simple. The 50/30/20 rule is a simplified budgeting strategy that’s gained traction because it limits the number of spending categories a budgeter must establish and then follow.
After determining net take-home pay (what’s left after paying taxes), it breaks down the spending money that’s left into three buckets: needs, wants, and savings:
• 50% of the money goes toward needs, including housing costs, utilities, groceries, transportation, medical expenses and any regular debt payments that have to be made (credit card bills, loans, etc.). From there, it’s up to whoever is drawing up the budget to determine what are the true necessities and what belongs in the wants bucket.
• 30% goes to those wants. That’s everything from grabbing takeout, to your Netflix subscription, to getting your car washed and detailed for date night. Logically, this is the portion of the budget that has the most potential for trimming, but emotionally, it might require some real effort to get everything to fit the allocated funds.
• 20% goes to savings. This money might go into an emergency fund, some sort of savings account for short- and long-term goals and/or an investment savings/retirement account. If you decide to pay extra toward your credit card or student loan debt, that expense also would go in this category.
The percentages are meant as a guideline, and they can be tweaked to fit individual needs. The key is to make a budget that’s strict but doable.
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Yes, this is easier said than done, but before rolling your eyes and moving on, consider the possibilities.
Is it time for a pay raise? If a bump is overdue, it might be time to have a talk with the boss.
Is there side-gig potential? Do you always have nights or weekends off, and would your employer be OK with your taking on a part-time or occasional job for extra money? Maybe a friend does catering, landscaping, house-painting, or some other work and could use an extra hand from time to time.
Could a hobby become a money-maker? Crafty folks can sell their wares online or at craft fairs and flea markets. History buffs can give lectures or teach classes. Animal lovers can offer dog-walking or cat-sitting services. Where there’s a passion, there’s often a way to earn income.
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If that raise comes through, or you earn a bonus at work, or you get a tax refund from Uncle Sam, instead of living it up while the money lasts, consider using it to pay down some debt.
A few hundred dollars might not feel like it’s making much of a dent, but every dollar you pay over the minimum can help reduce the interest you owe on a credit card or student loan.
To get some idea of how paying even a little extra toward a bill can help, check out the alert on your monthly credit card statement. The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 requires card issuers to warn consumers about how long it will take to pay off a balance if only the minimum is paid each month.
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One way to consolidate debt is with an unsecured personal loan. You may be able to consolidate all or some of your debts at better terms, such as a lower or fixed interest rate and possibly pay them off in less time than you expected.
This strategy could be useful for those who aren’t up for keeping tabs on several bills every month. A personal loan can consolidate multiple debts together into one manageable payment, which could help make it easier to keep tabs on what you’ve paid and what you still owe.
And because the interest rates offered for personal loans can sometimes be lower than the rates on credit cards, you could end up paying less in interest over the life of the loan than you would have if you just kept plugging away at those individual revolving credit card balances.
Typically, the better your financial and credit history, the better the loan terms are likely to be, so it can be a good idea to check your credit record and make sure the information listed on credit reports is accurate.
Then look for a lender who offers the best terms to fit your needs. Keep the length of the loan in mind, as well as the interest rate and other terms to help you on the road of becoming debt-free.
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It could be difficult (okay, next to impossible) to stop using credit cards completely since they’re commonly used for things like booking or holding flights, making online purchases and more. But making a commitment to reduce credit card utilization could help you cut spending and reduce the amount of money that’s only going toward interest on those cards.
A credit card is a convenient way to pay — if you can keep your balance at zero. But if you can’t afford to erase the balance each month with a full payment, the interest can start piling up.
And though many credit cards make limited-time “no interest” offers, it’s good to review the terms in detail.
For instance, some cards may have terms where if consumers don’t pay off the entire balance by the end of the promotional period, they may be charged all of the interest accrued since the date of purchase.
To better the chances of staying in check, some options may be to consider recording all credit card purchases with a budgeting app or pen and paper and to try and face the costs in real-time, instead of weeks later when the bill arrives.
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Seeing progress is inspiring for many people. Think about how good you feel when you lose a little weight from dieting or gain some muscle from working out. Even small wins can be motivating.
How does that apply to downsize your debt?
Two of the commonly recommended approaches to debt repayment are the Debt Snowball and Debt Avalanche methods. These strategies vary but primarily focus on paying extra toward just one balance at a time instead of trying to put a little extra money toward all your balances at once.
The Debt Snowball
The Debt Snowball method directs any excess free cash you might have to the debt with the smallest outstanding balance. Here’s how it can work:
• Start by listing outstanding debts based on what you owe, from the smallest balance to the largest. (Disregard interest rates.)
• Make the minimum payment on all other debts and pay as much as possible each month toward eliminating the smallest balance on your Debt Snowball list.
• After you pay off the smallest debt, turn your attention to the next-lowest balance.
• Keep going until you are debt-free.
The Debt Avalanche
The Debt Avalanche method targets the highest interest rates rather than the balance that’s owed on each bill. It’s more about math than motivation — you can save money as you eliminate each of those high-interest loans and credit cards, which should allow you to pay off all your bills sooner. Here’s how it can work:
• Disregard minimum payment amounts and balances, and list balances in order starting with the highest interest rate.
• Make the minimum payment on all other debts and pay as much as you can each month to get rid of the bill with the highest interest rate.
• Move through the list one debt at a time until you pay off all the balances on your list.
Though the methods are different, both plans provide focus, and as each balance disappears, momentum grows. But a newer approach, the Debt Fireball method, may be a better fit for modern-day debt, which could include a large amount of low-interest student loan debt.
The Debt Fireball
The Fireball method takes a hybrid approach to the traditional Snowball and Avalanche strategies. It’s called the Fireball because it can help blaze through bad debt faster by making it a priority. Here’s how it can work:
• Categorize all debts as either “good” or “bad.” “Good” debt is generally things that can increase your net worth such as student loans or mortgages. (Interest rates under 7% could be considered good debt—rates above 7% would likely fall into the “bad” category.)
• List all those “bad” debts from smallest to largest based on each bill’s outstanding balance.
• Make the minimum monthly payment on all other debts and funnel any extra cash available each month toward the smallest balance on the Fireball’s “bad” debt list.
• Once that balance is paid in full, move on to the next smallest balance on that list. Keep blazing until all “bad” debt is repaid.
• Pay off “good” debt on the normal schedule while investing for the future. Apply everything you were paying toward “bad” debt to investing in a financial goal.
The Fireball makes sense mathematically because it gets rid of expensive (or bad) debt first, but it also provides plenty of motivation because momentum can grow as you approach the finish. These two combined elements could provide an extra boost to your efforts.
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The deeper the hole you’re in, the longer it may take to climb out. But having the right plan in place before you start could give you a better shot at sticking to a budget, minimizing your dependence on credit cards and methodically reducing your debt in a way that keeps you motivated and saves you money.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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