Got Debt Sticking Around From the Holidays? How to Tackle Credit Card Bills vs. a Holiday Loan

LOS ANGELES, May 13, 2021 (Newswire.com) - The end of the year can be one of the hardest times financially. And many people are still dealing with holiday debt well into the spring.

If you took on some debt this holiday season, you might be wondering where to start paying it down. Should you work to pay down credit cards or holiday loans first?

Deciding Where to Put Your Payments

When managing multiple debts, it's critical to determine where your money will make the most impact. That means considering:

• Interest rates: It's often advisable to start by paying the balance on whatever debt has the highest interest rate. This approach is known as the "debt avalanche" and encourages saving the highest possible amount on interest over time. Many credit cards come in at a higher interest rate than personal loans, but it's critical to compare your specific terms to confirm.
• Balance due: Sometimes, it's more manageable to completely pay off a smaller balance, then roll those payments into paying on the larger account. Financial experts refer to this approach as the "debt snowball." Once you knock out the smaller debt, you have the momentum to move forward and put that amount towards your next debt.

Paying Down the Credit Cards vs. Holiday Loans

If your credit card has a significantly higher interest rate, it can make sense to begin paying it down first. By meeting your monthly payment on a holiday loan, then putting all extra available money towards credit card debt, you'd be saving money on interest.

If you only have credit card bills and no loan debt, you might consider taking out an unsecured personal loan to pay off the total balance if this loan comes with a lower interest rate than the credit card bills.

Assuming you have a loan with no prepayment penalty, putting a bit extra towards the principal can be wise. But if you're going to face a penalty for early payments, it's likely best to stick with the payment schedule you agreed to when you received the loan.

If You're Not Making Progress on Repaying Holiday Debt

If you've tried to pay down credit cards or holidays loans but just aren't getting any traction, it may be worth considering a:

• Credit card balance transfer: If the majority of your holiday debt is on credit cards, a balance transfer can be a way to save money on interest. As long as you're capable of paying off the total balance in the introductory offer window, you'll be able to attack your debt interest-free.
• Debt consolidation loan: It can be challenging to manage multiple loan repayments each month. A debt consolidation personal loan can take the guesswork out of handling various accounts and pull together all of your loan debt into one easy monthly payment.

The Bottom Line

Over-spending during the holidays happens, but don't let your debt linger longer than it needs to. Consider your interest rates, balances, and consolidation, if needed, to make sure you'll be able to start saving as soon as possible for this year's holiday season.

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.

Source: iQuanti, Inc.