Overspent on the Holidays? Here's Your 3-Point Debt Payoff Plan

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  • Many people close out the holidays with debt.
  • A few key moves could free you of yours fairly quickly.
  • Put your debts in order based on how rigid their pay-off requirements are, make your debt less costly, and consider ways to free up extra cash to pay them off.

Did the holidays leave you in debt? Here's a solid strategy for eliminating it.

The holidays are a great time to be generous -- but only to a point. And if your generosity has landed you in debt, you're not alone.

That said, the last thing you want to do is let holiday debt linger. If it drags on, it's only going to cost you more money. And it might even cause damage to your credit score, which you really don't want. So if you're closing out the holiday season with debt, here's your three-step plan for paying it off.

Step 1: Order your debts from least to most flexible

Some types of debt are more rigid than others when it comes to sticking to a payment schedule. If you made any holiday purchases using a "buy now, pay later" (BNPL) plan, you don't get much wiggle room in paying them off. Rather, you have to stick to a schedule that has you making payments for a limited period of time (usually three months or less).

On the other hand, if some of your purchases were made via credit card, you get a little more flexibility in that you can start by making your minimum payments and then tackle your remaining balance once you're able to. Of course, carrying a balance forward isn't ideal, but if you fall behind on BNPL payments, you could face harsh penalties and credit score damage. If you make your minimum payments on your credit cards, you'll rack up interest, but your credit score shouldn't take a hit.

Step 2: Find ways to make your debt less expensive

Once you've knocked out your "buy now, pay later" purchases, you may be sitting on several credit card balances to tackle. At that point, consolidating your debt could make it easier to pay off and less expensive.

One option in that regard is to move your existing balances onto a single card with a 0% introductory rate. Another is to take out a personal loan, which will generally mean paying a much lower interest rate than what your credit cards are charging you. Plus, with a personal loan, you lock in a fixed interest rate, which prevents a scenario where your monthly payments rise over time.

Step 3: Come up with a plan to free up cash

Knocking out your debt will require extra money. So you'll need to think of your most realistic option in that regard.

If inflation is causing you to spend the bulk of your paycheck on essential expenses, then telling yourself you'll reduce your spending may not cut it. Instead, you may need to get on board with the idea of taking on a second job temporarily, until your debt is paid off.

Ending the holidays with a pile of debt isn't the best thing, but it's also pretty common. If you follow these three steps, you might find that you're done with your debt fairly early on in 2023. And that will give you one less thing to stress about. At the same time, use your experience as motivation to start saving money for next year's holiday season. That way, you won't have to follow this three-step plan again.

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