Finance 101
December 23, 2020

6 Ways to Pay Down Holiday Debt

The holidays are not only the most wonderful time of the year, but they also tend to be the most expensive. So, if you’re feeling a bit of a holiday debt hangover, you’re not the only one.

Last year, Americans took on an average of $1,325 of debt during the holidays, according to a MagnifyMoney survey, and many carried debt into January. With an average interest rate of almost 15%, it would take more than five years to pay off that balance if only making the minimum payments of $30. What’s worse, it would cost a whopping $586 in interest while paying off the debt.

If that doesn’t sound appealing to you, here are six tactics for ditching your holiday debt faster, so you can start the new year right.

Create your payoff plan

Before kicking off your holiday debt payoff, you’ll need to create a realistic plan. The first step is facing the numbers.

Start by making a list of each debt, including the balance, interest rate, minimum payment, and due date. Getting organized will make it easier to tackle your next step: choosing a payoff strategy.

While there are many debt payoff strategies, the debt snowball and debt avalanche are the most popular. Here’s a quick rundown of each payoff method:

Debt snowball

The debt snowball method focuses on paying off your smallest debts first while making minimum payments on the others. As you pay off each debt, you’ll have more cash to pay off the rest, creating a snowball of payments. This method may keep you motivated with smaller wins.

Debt avalanche

The debt avalanche method focuses on ditching your debt from your highest to lowest interest rates. By paying off your highest interest rates first, you may save more money over time.

There is no right or wrong approach to debt payoff. The best method is the one you can stick with to achieve your financial goals. Once you pick a strategy, you can speed up the debt payoff process with the following proven tactics.

Trim your monthly bills

One of the easiest ways to find extra money is by reviewing your monthly bills. While utility bills tend to be more costly in the winter, there may be simple ways to lower your heating bill or other utilities.

Another painless way to save: unplug your unused electronics. You could save up to $100 to $200 per year by unplugging electronics, like your coffee maker, toaster oven, hairdryer, and space heaters when not in use. Older devices, like your cable boxes and DVRs, can be exceptionally costly.

You can also check your insurance policies for savings opportunities. A recent Consumer Reports survey found 62% of those who switched car insurance providers saved money. You might be able to save on premiums by increasing deductibles without changing the underlying coverage.

Any money you save can be repurposed to pay down those holiday bills.

Declutter for cash

After the holidays pass, it may be time to embrace your inner Marie Kondo and declutter your home to earn some extra money. If you received any new devices, like a Kindle or gaming system, you could sell the older versions online through eBay or Facebook Marketplace.

January is also the perfect time to declutter your closet. Chances are, there are plenty of like-new items of clothing you could sell without ever stepping foot into a consignment store. Mobile apps like Letgo make it easy to turn unwanted stuff into money to throw at your debt.

Exchange unwanted gifts and gift cards

If you received cash from your family, you could use the money to cover your holiday bills. And while it may seem ungrateful, you shouldn’t hesitate to return any unwanted gifts. Even if the store only offers you a credit, you may use it for something you need more.

It can be tempting to spend holiday gift cards on something more fun, but instead, consider using them to cover groceries or school supplies and funnel the extra cash you’d usually spend on those necessities toward your debt.

You can also turn gift cards into money through websites like Gift Deals or CardCash. Although you may receive less than the face value, it could be a smart way to move the needle on your goals.

Make use of your tax refund

With tax season approaching, you may receive a small windfall through your tax refund. According to the IRS, the average tax refund was $2,640 in 2019, which could be enough to wipe out your holiday debt, or at least close to it!

The fastest way to receive your refund is by e-filing and signing up for direct deposit, and most filers receive their money in fewer than 21 days. You can keep tabs on the status of your refund with the Where’s My Refund? tool after you file.

Boost your income

While the pandemic may make some in-person side jobs more challenging, there are still plenty of ways to earn extra money in your free time. Here are five fun side hustle ideas to get you started.

Websites like Snagajob cover various local part-time gigs, and you can apply on-the-go through the company’s mobile app.

You may also try promoting odd jobs, like shoveling snow from your neighbors’ driveways or cleaning gutters once it starts getting warmer. Try posting your services in your neighborhood’s Facebook Group or through apps like Nextdoor.

Small steps to big goals

Whether your holiday debt is a few hundred dollars or over a thousand, every extra dollar will get you closer to being debt-free.

If you’re feeling overwhelmed by multiple credit card payments, you may consider applying for an installment loan. You could consolidate your debt to one monthly payment, which can make paying more manageable.

By staying focused and cutting costs, you might be able to get your debt under control sooner than you expect, with more money for other financial goals.

 

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