How to Handle Holiday Debt

by Christy Bieber | Nov. 14, 2019

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Woman holding shopping bags with holiday decorations near her.

Image source: Getty Images

Spending increases around the holiday season -- there's no way around it. Chances are good you have gifts to buy, people to entertain, and places to go. While it's ideal to save up for the holiday season so you don't have to go into debt, far too many people don't do that. And, it's already too late to do a lot of saving for 2018 since the holidays are approaching fast.

If you find yourself in a situation where you need to spend more money for the holidays than you have available, you could end up in debt. While this isn't a good thing, there are ways to be as smart as possible when you have to borrow. Here are some tips to help you handle your holiday debt.

Borrow the minimum you can get away with

If you absolutely must borrow for the holidays, you should aim to take on the absolute minimum amount of debt possible. That means buying only the necessities if you can't pay off the bills for splurges.

If you know you have to borrow, set a budget for the things you have to buy -- such as a few gifts for your kids. Then, see what you can cut. For example, you could talk with your loved ones about going out for a nice meal instead of exchanging gifts so you don't have to buy for a long list of adults who may not need anything anyway. Or, you could drive instead of flying to get home to your family for the holidays, or perhaps cash in some credit card rewards for miles to make your trip cheaper.

The less you borrow, the sooner you can become debt free, so anything you can do to minimize your expenditures is worth pursuing.

Use a card with a 0% APR

If you've cut your budget to the bone and still must use your charge card to pay for some holiday costs, try to use a card with the lowest possible interest rate. In fact, it may even be worth applying for a card that offers a 0% introductory APR on purchases.

While applying for new credit can temporarily reduce your credit score, being able to charge what you need and pay no interest for several months -- and sometimes as long as a year -- can make it much more affordable to pay back your holiday debt.

Know what your payments will be

When you're borrowing, it's sometimes too easy to just charge stuff on your card and worry about it later. The problem is, the amount you're spending can quickly add up and you may be shocked how much your monthly bill is going to be.

To make sure you don't end up with so much debt that making monthly payments is hard, keep tabs on your spending and know your card's minimum payment rules. You don't want to just pay the minimums, but you at least need to know what you'll be required to pay to ensure you never ever put yourself into a situation where you have a credit card bill and can't pay what's required.

Make a payoff plan

As mentioned above, you don't want to just pay the minimum on your holiday debt -- otherwise, it could take you years to repay what you owe. Instead, you should make a payment plan to send in a hefty sum each month and become debt free as soon as possible.

Add up how much you need to charge for essential holiday costs by making a budget for necessities and sticking to it. When you know the amount you'll be charging, figure out how much you'd need to pay to get the debt paid off ASAP.  

For example, if you're charging $1,000 on your card at 15% interest to pay for a holiday trip home, you'd need to pay around $90 per month to pay off the card in 12 months, $175 to pay  off the debt within six months; and $342 to pay it off within three months.

Take a close look at your budget to see what you can cut to prioritize savings, and commit to paying off a certain amount each month so you can get your debt down to $0 in the shortest time frame that's feasible.

Give yourself the gift of getting out of debt ASAP

By following these tips, you can hopefully take care of your holiday debt quickly so you aren't paying for this season's celebrations for years to come. Then, make a plan to save during the course of this year so that when the holiday season rolls around next year, you'll be ready to pay out of pocket without having to borrow. You'll enjoy the holidays much more when you don't have to worry about how to pay when the bills come due.

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