Reaction: 5 Tips to Pay Off Holiday Debt

Holiday debt is a reality for many people in our country. Without diving into the reasons behind it, the reality is that the joy of spreading cheer by giving to others can leave us with a

financial hangover come January. Many people put their holiday purchases on credit cards which they then must figure out how to pay off in the coming months. This article by Colette Bennett is about that very thing and some tips to help. I’ll leave you to read the article for yourself, but I did have some thoughts as I read through that I wanted to share.

https://money.yahoo.com/pay-off-holiday-debt-fast-185727612.html

Choose Your Payoff Strategy

This is a principle of debt repayment that goes well beyond paying off holiday purchases. The premise here is simple: You start paying on the debt with the lowest amount first or you start paying on the debt with the lowest interest rate first. In reality, either works. Paying the lowest interest rate first is the mathematically sound approach. However, the motivation that comes from seeing debts get paid off by (starting with the smallest debt) often produces better long-term results. In other words, people tend to stick with it. So, in regards to this first tip: If paying off your debts (holiday or otherwise) is going to take a significant amount of time (more than a few months), starting with the smallest amount may provide the motivation to stick with it.

Transfer Balances

This is another math vs. behavior discussion. Balance transfers can be h

elpful in reducing interest rates and, therefore, the total amount of money you repay. However, they typically come with fees, so you must do the math and figure out whether it makes sense. Additionally, balance transfers often become a band aid solution. You feel like you accomplished something by transferring your balance to a lower-interest-rate card. That in itself is not an accomplishment. You need to get rid of the debt. Balance transfers can help, but your behavior is what gets the job done.

Negotiate Your Interest Rates

This is really the same discussion as above. It can help you, especially if you have high-interest cards or loans, but you attacking your debt is ultimately what gets the job done.

Flip Your Unsecured Debt

This point is the one I had the strongest reaction to because, to me, it is terrible advice. The idea here is to take ‘unsecured debt’ like credit cards and turn them into ‘secured’ debt (with collateral) be refinancing your home or vehicle to get a lower interest rate. The problem: you just added to the amount you owe on that item of collateral, eithe

r your home or your car. If you don’t pay your credit cards, the credit card company will get mean. They may send it to collections, and after quite some time (like a year or more) you may end up being sued to collect the balance you owe. But, if you don’t have any money, there’s nothing for them to take. When you put your house or car up as collateral for a loan, if you don’t pay the loan, they take your house or your car. That’s the concept of collateral. So, why in the world would you put more risk, more debt, on your house or your car for Christmas presents?! This is a wholly terrible idea that never should have been suggested in this article. Please, do not ever roll unsecured debt into your mortgage or car loan. Outside the holidays, this is an often-suggested strategy to pay off credit card debt. Don’t. It’s a bad idea. Don’t do it. Attack your credit cards and get them paid off.

Cut Corners Where You Can

Supplementing the other tips, this tip is the cornerstone of getting out of debt, holidays or not. Most people spent years getting themselves into debt. If you allow it, it will take you even longer to get out (if you ever get out). But it doesn’t have to. Most people can pay off their non-mortgage debts within a short time if they are willing to make some sacrifices. Eat out less, only buy necessities, cut out cable for a while. Free up some your income to be able to attack your debt, knock it out quickly, and start living the life you want to live. When I started attacking my debts, they had been built up over years. I had student loans that were 8 years old, credit card debt that had accumulated over several y

ears. We knocked it all out 20 months by cutting our excess expenses and attacking our debts with that freed money. Twenty months, not even two years, of work and sacrifice, and we never have to worry about those debts again. We never have to make those payments again, and the money that was going toward those debts can go towards living a better life.

Conclusions

Most of these tips hold true for paying off debt in general and are good tools to utilize to help you in the process. However, remember that your behavior is more important than the math. Making payments on your largest debt first because it is your highest interest rate doesn’t matter if you give up after 3 months. Changing financial habits is about behavior change, and behavior change is dependent on motivation and encouragement much more than math or knowledge. Like learning healthier eating habits instead of dieting, building better financial habits will serve you much better in the long run than implementing a few quick tips. I’m here to help you build those habits and encourage you along the way. Contact me to get started today.