American consumers planned to spend an average of about $1,007 during the 2018 holiday season, according to an annual survey by the National Retail Federation, an increase of more than 4% from a year ago. And, Mastercard SpendingPulse™ recently found even sharper growth, indicating that holiday spending rose 5.1% to over $850 billion this year.
The point is that it’s fair to assume that all of this holiday spending left many Americans in debt. If you’re one of them, here are three smart strategies to help get rid of your debt quickly.
Get rid of the interest
Did you know that if you owe $1,000 on a credit card at 20% interest and make a $40 payment, only about $23 is going towards paying down the principal? The rest is going straight into your bank’s pocket as interest.
So, if you can’t pay down your credit card balance right away, one smart move could be to transfer the balance to a card with a 0% promotional APR. Several of the best balance transfer credit cards have 0% APR periods of 18 months or longer. And, you may not even need to get a new credit card to do this — it’s not uncommon for credit card issuers to offer 0% APR balance transfers to their existing customers. I just checked my Discover it® credit card account as I’m writing this, and it turns out that I can transfer a balance to that account and get a 0% APR for 12 months with a 3% balance transfer fee.
The point is that if you’re in debt, a smart move is to get your interest rate as low as possible. That way, at least you know that every dime you pay towards your account will be applied toward eliminating your debt, not towards making your bank richer.
Need more time? Consider a personal loan
Getting a 0% APR balance transfer is only a good idea if you’re reasonably certain of your ability to repay the debt within the initial promotional period. Alternatively, if you need more time, a personal loan can be a smart way to go.
The market for unsecured personal loans has exploded in recent years, and as a result, competition in the industry has never been higher. If you have a reasonably good credit score, there are many lenders who would love to help you refinance your debt, and almost all personal lenders will allow you to view your interest rate and loan offers without affecting your credit score.
While it isn’t true in 100% of cases, a personal loan can often be found with a significantly lower interest rate than your credit card charges. There are excellent personal lenders that make loans of up to $100,000 and offer repayment terms of as long as 72 months or even longer in some cases. So, if you’d rather spread your debt repayment out over a few years while saving money on interest, a personal loan can help you get your holiday debt under control.
Pick up a temporary side hustle
So far, we’ve looked at ways to get rid of holiday debt while paying as little interest as possible. As a final tip, we’ll consider a way for you to pay down your debt faster.
Specifically, it has never been easier for Americans to pick up a flexible side job. You could drive for Uber or Lyft. You could deliver food for Uber Eats or groceries for Shipt. Or, if you’d like to put your other skills to work, you can check out a freelance employment marketplace like Upwork, which has tons of jobs listed.
All of these have flexibility when it comes to scheduling and can be 100% temporary. In other words, there’s no reason you can’t drive for Uber for just a few months until you get your debt under control. In short — the gig economy is at your disposal. If you have debt you’d like to knock out and can free up some time in your schedule, take advantage.
Smart debt repayment can save you a lot of money
As a final thought, consider this example. Let’s say that after buying gifts and paying for your family to take a holiday road trip, you find yourself with a $5,000 credit card bill. Based on the national average credit card APR of roughly 18%, making a $100 monthly payment will result in you paying $4,311 in interest before the debt is extinguished, which would take 94 months — nearly eight years. On the other hand…
- Paying down the same balance over four years with a personal loan at 8.9% would save you $3,350.
- Increasing your monthly payment to $400 by working a side job would save you $3,733 and cut your repayment time to just 14 months.
- Transferring the balance to a 0% APR credit card and boosting your payment to $400 per month would save you $4,161 in interest (assuming a 3% transfer fee) and would allow you to pay off the debt in just over a year.
The bottom line is that by paying down your debt with one, or a combination of strategies like these, you can repay your debt faster and keep hundreds or even thousands of dollars in your pocket.
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