With the holiday season finally over, two thoughts are occupying people’s mind. Firstly, when will this winter get over and secondly, how do I get out of holiday debt? Since no human intervention can change weather forecasts, it would be wise to concentrate our energies on ways for quick debt settlement.
According to magnifymoney.com holiday debt forms a major chunk (nearly 68%) of credit card debt that is accumulated over the holiday season while shopping for food, decoration and gifts. The main reasons for debt accumulation are overspending and not making a budget.
A survey conducted by one of the largest banks of America, TD bank showed that nearly 76% of Americans are guilty of overspending in 2017.
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The survey also revealed that just over half of the overspending population thinks that it would get rid of debt in next two months. With credit card interest rates ranging from 10% to 30% many would be able to pay off their holiday debts by next holiday season only. Hence it becomes imperative to find debt solutions fast.
Here are Listed Some Tried and Tested Methods and Tips that Would help to Get Rid of Debt Quickly and Effectively
#1. Avalanche Method
This method focuses on paying off holiday debts with a higher interest rate first. In order to understand this method, let us look at an example. Suppose A has a total debt of $1000. He has this debt distributed over 4 credit cards.
|Card Name||Debt Amount||Interest Rate|
Now, A has funds of $100 to put towards these debts. According to the Avalanche method he should put the maximum amount towards the costliest debt, i.e. the debt with the highest rate of interest. Here it would be credit card S.
This is where most people fail. They have a tendency to decrease the number of debts. Hence closing debt P and Q would look more appealing to them than closing S. Though logic dictates that by closing debt S they would get rid of debt quickly.
#2. Snowball Method
This method is just the opposite of avalanche method. This method works well in cases where the interest rate does not vary. Here you need to pay the smallest debt first so that your total number of debts will decrease.
This method has the psychological benefit of making the overall holiday debt less intimidating and helps you get rid of debt quickly. It has been effectively demonstrated by a study done by Kellogg School of management. Through their study they found out that people get motivated by small victories and hence eliminate their debt faster.
#3. Pay Wisely
When you are paying your credit card debt, follow the below tips given by Dr. Ali Besharat who is assistant professor of marketing at Daniels college of business. These tips will help you get rid of debt smartly:
- Make multiple monthly payments:
This is because the interest is accumulated daily. In case of a big holiday debt, making multiple payments in a month will not only help to reduce the interest amount but would also help to get rid of debt fast.
- Go for the maximum payment instead of minimum:
By paying the maximum amount you will decrease the debt balance and achieve debt settlement faster.
- Coincide due date with your pay day date:
This way you will not forget to pay your dues and will not incur any late fees.
- Limit your credit utilization:
Interest rates on credit cards are dependent upon your credit scores. If you limit credit utilization, your credit score will improve automatically. This will help you get lower interest rates.
#4. Balance Transfer Plans
Balance transfer plans offered by various financial institutions are also one of the viable debt solutions. You need to have a good credit score to be eligible for it. You cannot transfer debts of the same lender.
You can check some of the best balance transfer credit cards of 2018 here. They would help you get rid of debt effectively.
There are various benefits of these plans like:
- You save money by transferring a high interest rate debt to a low interest rate.
- Through this debt consolidation program, you save time by making a single payment instead of making multiple payments.
- You get rid of debt sooner.
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#5. Debt Consolidation Loans
Through credit card debt consolidation loan, you can take a lower interest rate loan to settle your debts. This way you not only get out of debt quickly but you are able to do so at lower interest rates. One of the best companies that offer transparent services in this direction is National Debt Relief.
The downside with this option is that you need to put forth some kind of collateral, like a mortgage on your home.
#6. Debt Settlement Programs
There are services provided by various organizations for a fee. They help you negotiate with your lenders to reduce the interest rate or the debt amount. By getting debt relief in this way you are able to get rid of debt quickly.
The drawback to this program is that once you get a credit card debt relief through them, then your credit score gets negatively affected.
Wrapping It Up!
Holiday debts can take the fun out of holidays. In order to take yourself out of the vicious cycle of debt and payment, you need to make some quick financial decisions. You need to understand how to pay off debt fast.
Nick Clements of magnifymoney.com has summarized the steps to get rid of debts quickly:
- When you have a good credit score opt for balance transfer.
- When your credit score is average take a debt consolidation loan.
- When your credit score is below average use the avalanche method.
- When you have a poor or bad credit score than go for debt settlement programs.
In the long run it will help to make a budget for your holiday spending and stick to it. Do not get drawn to sales gimmicks and overspend. Stay clear of holiday debts and make happy and guilt free memories.