How to Pay Off Holiday Debt

1. Take Inventory of Your Debts

To start the process, take stock of your debt situation by logging in to each of your accounts and noting the following information:

• Balance
• Minimum monthly payment
• Interest rate

Knowing how much you owe and how much it's costing you can give you a better idea of which debts to prioritize.

2. Review Your Budget

If you don't already have one in place, create a budget by determining your monthly income and expenses. You can also categorize your expenses to get a better idea of where your money is going.

As you evaluate your spending, calculate how much you can reasonably afford to put toward your debts in addition to your minimum payments. You can also look at your different spending categories to assess whether you can cut back in certain areas to make more room for debt payments.

3. Try a Repayment Strategy

If you have a relatively small amount of debt, your credit needs some work or you want to avoid applying for another loan or credit card, consider an accelerated debt repayment plan. Some of the most effective options include:

• Debt snowball method: With the debt snowball method, you start by paying off the smallest credit card balance first while making minimum payments on your other bills. Then, as you gain repayment momentum, put more money toward the next biggest debt and so on until your total debt is paid off. Paying off your smallest balances first can help you stay motivated to tackle larger balances.
• Debt avalanche method: The debt avalanche method works similarly to the debt snowball approach but with one key difference: Instead of targeting your smallest balance first, you'll focus on the debt with the highest interest rate. Because you're tackling your most expensive debts first, you could end up saving more on interest charges.
• Debt snowflake method: The debt snowflake method can work on its own or in tandem with other repayment approaches. With this strategy, you'll keep track of small everyday savings, such as coupon savings at the grocery store, cash saved by eating at home instead of dining out and cash back rewards. Then, you'll take those savings and add them to your monthly payments. The snowflake approach is more involved because it requires meticulous tracking, but it can make a significant difference over time.

4. Consider Consolidating Your Debt

If you have a sizable amount of debt—including non-holiday spending—and good credit, it could make sense to consolidate your balances. Depending on the situation, you could save both money and time as you pay down your debt.

The most popular debt consolidation options include:

• Balance transfer credit cards: A balance transfer credit card offers an introductory 0% APR promotion, allowing you to move debt from another credit card or loan and pay it down interest-free over 12 to 21 months. There's typically an upfront fee of 3% to 5% of the transfer amount, but even with that charge, you could save hundreds of dollars on interest.
• Personal loan: A personal debt consolidation loan won't give you a 0% APR promotion, but it can provide you with a structured repayment plan—something credit cards don't offer on standard purchases—which can range from one to seven years. On average, personal loans charge lower interest rates than credit cards, so if your credit is in good shape, you could still save some money.

5. Get Help From a Credit Counselor

If your overall debt situation feels like it's out of control, it could be a good idea to speak with a credit counselor who can provide you with expert, personalized and often free advice.

If your combined debt from holiday shopping and other spending is too unwieldy, the credit counselor could recommend a debt management plan, which can put you on a structured repayment term with potentially lower monthly payments and interest rates.

You can find a nonprofit credit counseling agency through the National Foundation for Credit Counseling or the Financial Counseling Association of America.

6. Prepare for Next Season

As you work to pay down your most recent holiday shopping, you can also look ahead to the next season and consider ways you can minimize your reliance on debt or eliminate it altogether. Potential options include:

• Cutting back on lifestyle spending: It can be difficult to know how much to budget for discretionary spending. However, if you have an important savings goal, such as holiday expenses, that can make it easier to make sacrifices in certain areas. Adjusting your budget for holiday shopping throughout the year can make it feel like less of a burden compared to drastic last-minute measures at the end of the year.
• Automating holiday savings: Take a look at how much you spent during the most recent holiday season and determine whether you're likely to spend more, less or the same amount next year. Then, divide the amount you expect to spend by 12 and determine whether you can save that much each month in addition to your debt payoff and other spending. You can set up a separate savings account and automate your savings via recurring transfers or even payroll splits.
• Creating your holiday budget early on: Holiday deals come earlier and earlier every year, and once you start seeing savings, it can be difficult to keep track of how much you're spending. Take time to create a holiday budget in October to avoid getting caught off guard. Then, be sure to track your spending to ensure you stay in line with your goals.

Increase Your Credit Score to Improve Your Options and Save

Whether or not you plan to borrow money in the future, it's a good idea to build and maintain a good credit history so you can qualify for affordable credit when you need it most.

Start by checking your credit score and credit report for free with Experian. These resources can give you a full picture of your credit health and make it easy to understand where you can make improvements.

As you take action based on the information you find in your report, continue to monitor your credit to track your progress and make adjustments to your approach as needed.