Holiday debt isn’t always planned. Sometimes you head into the holiday season believing you’ll be able to pay off all the gifts you charge to a credit card, but then “life happens.”
Maybe your holiday bonus from work wasn’t as big as you imagined it would be, or perhaps you find yourself with fewer hours at work each week. All of a sudden, you’re stuck with a lingering credit card bill that could take months or even years to pay off and wondering what you should do next.
While all debt can be dangerous under the right circumstances, credit card debt can be especially harmful due to the high interest rates many cards charge. Keep in mind that the average credit card comes with an APR over 17%, but that many rewards and cash-back credit cards charge higher rates than that — especially when your credit isn’t great.
If you’re wondering what steps to take now, you may be surprised to find your credit card could actually help you get out of debt. It really depends on the type of credit card you have.
Check Whether Your Rewards Credit Cards Offer Statement Credits
The information related to The Chase Freedom Unlimited® credit card has been collected by CreditSoup.com and has not been reviewed or provided by the issuer of this card.
Did you rack up your holiday debt on a rewards or cash-back credit card? If so, it makes sense to check whether you have the option to redeem your rewards for statement credits. Many cards offer this option including the Capital One® Quicksilver® Cash Rewards Credit Card and the Chase Freedom Unlimited®. With these cards and others, you can redeem any rewards you’ve earned to erase at least some of your holiday purchases from your bill.
Getting rid of debt isn’t nearly as fun as redeeming rewards for travel or cashing them in for gift certificates to your favorite restaurant, but it can make your life a lot less stressful. If you have a rewards credit card that lets you cash in points for statement credits, you should absolutely consider it.
Other Ways to Pay Off Lingering Holiday Bills
If your rewards aren’t enough to cancel your debt or you don’t have any to cash in, keep in mind there are plenty of other ways to get out of holiday debt sooner rather than later. Here are the best options to focus on as you dig your way out.
Pay More than the Minimum
First things first. If your goal is getting out of debt, you have to pay more than the minimum on your credit cards — and hopefully a lot more than the minimum required. Paying the minimum payment only ensures you’ll drag your debt out for years to come and pay a lot more interest than you should. By paying over the minimum payment, on the other hand, you’ll ensure each dollar you pay over the minimum payment goes directly toward the balance you’re trying to pay off.
Consider this example: Let’s say you wound up with $1,200 in holiday debt on a credit card with an APR of 18%. If you paid a minimum monthly payment of $25, you would need to pay off your debt over 86 months and you would pay $937 in interest over that timeline.
If you paid just $40 per month, on the other hand, you could pay off your debt in 40 months and pay only $404 in interest over that time.
Transfer Balances to a 0% APR Credit Card
If you have considerable credit card debt you need to pay off, you can also consider signing up for a balance transfer credit card. Many cards in this realm come with 0% APR for anywhere from 12 to 21 months, making it easy to pay down debt faster and without any interest payments.
While most balance transfer credit cards don’t charge an annual fee, keep in mind that many do charge a 3% or 5% balance transfer fee upfront. While paying this fee can be a pain, the interest savings you gain can dwarf the small fee you’ll pay. Make sure to run the numbers with a credit card or debt repayment calculator before you decide. Also compare balance transfer cards to find the best deal.
Find Ways to Earn More Money
If you want to get out of credit card debt, you can also look for ways to bring in more cash. This may be something as simple as picking up more hours or a few extra shifts at work, but you can also consider getting a part-time gig or side hustle that can bring in additional funds just for debt repayment.
Keep in mind that side hustles don’t have to last forever, and that you can quit working so hard once you’re finally out of debt. If you can hustle for a while and get out of debt once and for all, you’ll likely be thanking yourself for years to come.
Stop Using Credit Cards
Finally, getting out of debt will be considerably harder if you continue using credit cards. To stop accumulating more and more debt, you need to stop spending with plastic!
Sticking to debit or cash while you’re in debt repayment mode can be a smart move if you are tired of watching your credit card balances grow month after month. It can also help to create a monthly budget that makes sense with your lifestyle and your goals. That way, you have a general idea of how much you spend each month — and some basic parameters to stick to.
The Bottom Line
Holiday debt is unfortunate, but it can happen to anyone and often appears out of nowhere. If you have some credit card rewards that can be converted to statement credits, that’s one easy way to make a dent in your debt in a hurry. If not, you’ll need to get creative and look for ways to save money on interest payments and pay more than the minimum payment on your cards.
If you don’t do something, and do it fast, you’ll still have holiday debt by the time next year’s holidays come around.
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