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How to Pay off Credit Card Debt After the Holidays

  • 1. Cut back where you can
  • 2. Get smart about store credit
  • 3. Tap into your emergency fund
  • 4. Open a balance transfer credit card
  • 5. Take out a (small) personal loan
  • 6. Use your existing HELOC

By Stephen Sellner | Citizens Bank Staff

It’s easy to get caught up in the holiday gift-giving spirit. Although our credit cards can get quite the workout in December — with all the gift buying and other expenses — we’re the ones who cramp up in January when the bills come due.

In 2017, the average American racked up $1,054 in credit card debt from the holidays. That expense isn’t easy to account for. So what are the best ways to pay off this debt quickly in order to start the new year on a strong financial note?

1. Cut back wherever you can

Part of the solution to holiday credit card is to give your card some rest and recovery in January. For instance, cut back on non-essential expenses, such as weekend activities. Then, take those savings and divert them straight to your credit card bill.

This, in itself, probably won’t pay off the entire bill, but it could pay off a good chunk. The key is to chip away at the bill over the course of the month; start by making the minimum payment early, then follow up with these incremental payments until the entire balance is paid off (hopefully before the due date).

2. Get smart with store credit

Did your eccentric aunt get you a DVD player that you have no interest in using? Hooray for gift receipts!

The problem here is that most retailers only provide store credit, not cash, when you return a gift. But with some creative thinking, you can still use those returns to pay down your holiday credit card bill.

For example, was the gift from Target? If so, you can use that store credit to buy essential items you needed anyway, like toothpaste, paper towels, or laundry soap. Then, use the cash you would’ve spent on those essentials to make another payment toward your bill.

Again, keep chipping away!

Just what you wanted? Maybe not. Thank goodness for gift receipts.

3. Tap into your emergency fund

Hopefully the two previous steps made an impact on your credit card bill. Still, there’s bound to be a balance remaining. The next place to look to cover the bill is your emergency fund.

This savings account — comprised of 3-6 months’ worth of expenses — is money you can use when you’re in a bind. That could be a car repair, medical bill, or — in this case — to cover the remains of your holiday spending. Withdraw whatever you need to cover the rest of your balance. Then, use the next few months to replenish those spent savings. That way you’ll have the cash you need should another “emergency” arise.

4. Open a balance transfer credit card

Emergency funds are great … when you have one. If you don’t, a balance transfer credit card could be a viable alternative.

A balance transfer involves taking your credit card balance and moving it to a different card, like one that offers an introductory 0% APR. That way, the leftover balance — from your holiday spending — can be paid off without racking up high interest charges. Just make sure you pay off the balance before the 0% APR offer ends, and be aware of any balance transfer fees.

5. Take out a (small) personal loan

If the above options aren’t available to you, consider an unsecured personal loan. Some lenders — credit unions and online lenders, for example — offer loans for $1,000 or less, which could cover the remainder of your credit card balance. If you owe closer to $5,000, you’ll find plenty of other personal loan options.

A couple things to keep in mind here:

  • The interest rate on a personal loan could be much lower than your credit card’s rate.
  • Personal loans have a fixed interest rate and fixed repayment period, which means your monthly payments won’t change and you’ll know when the loan will be paid off.

Just make sure the interest rate on any personal loan doesn’t exceed that of your credit card.

6. Use your existing HELOC

Are you still in the draw period of your home equity line of credit (HELOC)? If so, you can draw the money from there to pay off your credit card. Then, you can either pay back the HELOC money you withdrew before the draw period ends or pay it back during the normal repayment period. HELOCs generally have much lower interest rates than credit cards.

What to remember

It’s common to get carried away with holiday spending. Just make sure you have a plan to pay off the bill. That way you don’t let your holiday spirit get in the way of reaching your other financial goals.

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