After the fun of opening presents in December, some of us are left with a far more unwelcoming gift to open: your credit card statements come the new year.
If you’re faced with a mountain of bills and a mound of regret, you’re not alone. But ’tis the season to make changes – and now is the time to start off on the right foot.
Avoiding credit card debt is wise because it costs you in much more than just the interest charges you’re racking up. It can ding your credit score and make it that much harder to qualify for a future mortgage at the rate you want when it’s time to buy a home.
So, here’s what you need to know to get out of holiday credit card debt and stay there.
How Can We Avoid Overspending During The Holidays?
You might have a sinking feeling as you look at your credit card debt and say to yourself “There’s no way I’m ever doing this again.” But the funny thing is that most of us forget this remorse over the course of the year and end up right back in the same place. But you don’t have to.
The best way to avoid excess holiday debt is to start saving for the next holiday right now. You may have heard of a “vacation account” or a down payment account – in other words, a special savings account designed for one specific financial goal. Why not start a “holiday spending account” along with it?
Setting aside money each month now serves a double purpose: You won’t be walloped by a huge expense all at once, and you’ll have a clear picture of what your holiday budget should be.
Sometimes we overspend during the holidays because we have no clue what an appropriate amount is to treat our loved ones – and then we pay for it (literally!) with overwhelming credit card debt. With good habits set in place, you’ll be ready to head into next holiday season with a solid plan.
How Many People Have Credit Debt?
It may make you feel (slightly) better to know you’re not alone. In fact, the average household with a credit card (and that’s 189 million households) has more than $8,000 in credit card debt, according to Debt.org.
You might not be surprised to hear that those with credit card debt weren’t too concerned about digging the hole a little deeper with holiday spending. More than 60% of those who already had an outstanding balance on their cards said they weren’t bothered to take on additional debt for their loved ones and the holiday.
How To Pay Off Credit Card Debt
Vowing to not get in this same situation of excessive holiday spending next year is a worthy goal – but that doesn’t help you today. That’s why you need to take steps now to get out of credit card debt.
Know What You Owe
First, start by assessing the damage. It might be painful, but the only way you can assemble a comprehensive plan is to know how much you owe, on which cards, at what rates.
Put together a spreadsheet or use an app like Mint that helps you tally up your totals and identify the cards with the highest interest rate – those are the ones you’re going to want to pay off first.
Go On A Detox
You’ve heard of Dry January where people vow not to drink alcohol for the first month of the new year? That strategy can work for spending, too, by going cold turkey – putting no more purchases on your cards until they’re paid off, or at least down.
You might even take the whole “cold turkey” thing one step further and put your cards on ice – literally. Yep, freeze them so that they’re not even accessible.
Then, create a budget and take out the funds in cash; divide it among envelopes for your various expenses (groceries, entertainment, etc.) and when the envelope is empty, you’re done spending in that category. It’s surprisingly effective, and this method can jumpstart your efforts to get out of credit card debt as you apply even more of your money to paying down your debt.
Find Out If Debt Consolidation Is Right For You
If you’re really serious in your quest to get out of credit card debt, you might want to consider debt consolidation, a method designed to lower your payments by giving you a lower interest rate. That means not only can you pay off your debts sooner, but you will be paying less interest along the way.
It entails taking out another loan – which might seem like the last thing you want to do – but in many cases it’s the financially savvy choice. Here’s what debt consolidation might look like:
- You’ll provide financial information – don’t worry; it’s not intrusive.
- You’ll see which personal loan options you qualify for and you can select the variables that work best for you; that is, the monthly amount of your payment, how long you’ll pay it off (called the loan term), and the interest rate.
- Once you’ve found something you like, you will need to provide a little more detailed financial information.
- Once you’re approved and you’ve agreed to the terms, your loan will fund and you’ll be ready to tackle your credit card debt!
Debt consolidation through a personal loan lender like Rocket Loans is just one option for how to get out of credit card debt, but it can offer peace of mind and an easy, single payment that helps streamline your whole process.
If you’re a homeowner and have equity built up in your home, you might also consider refinancing your mortgage to consolidate debt. With a refinance, you can roll your high interest debt into your home loan at a much better interest rate than your average credit card. Depending on how much home equity you have, consolidating debt with a lender such as Rocket Mortgage® could help you stay on track with one monthly payment vs. juggling the interest rate and payment dates of multiple accounts.
Ready, Set, Save!
If you didn’t make a financial resolution, make this the year you get out of credit card debt – and look forward to celebrating your success with smart holiday spending in the upcoming year.
The Rocket Mortgage Learning Center is dedicated to bringing you articles on home buying, loan types, mortgage basics and refinancing. We also offer calculators to determine home affordability, home equity, monthly mortgage payments and the benefit of refinancing. No matter where you are in the home buying and financing process, Rocket Mortgage has the articles and resources you can rely on.