Between vacation shopping, parties, trips, and more, vacation expenses can really get away from us. Sure, you may have established a preliminary budget for holidays. But if you’re not careful, over-budgeting a little – or a lot – could have been pretty easy.
Does this situation sound familiar to you? You are definitely not alone. During the 2020 holiday season, Americans had an average of $ 1,325 in vacation debt, the majority of which was held on credit cards. And for most people, paying off vacation debts in January was not a priority, which meant moving over debt and incurring interest expense on it.
While about half of Americans planned to pay off their vacation debt in the three months following the holidays, 8% said it would take four months and 16% estimated it would take longer. five months. About 15% said they only planned to make minimum payments, which could stretch vacation debt for years.
If you reduce vacation debt or pay it off as soon as possible, you can save money in interest and Save you from financial stress. Discover tips on how to pay off vacation debt in this article.
Tips for paying off vacation debts
- Only spend what you can afford
- Pay off debts as early as possible
- Apply for a credit transfer card
- Cut down on unnecessary expenses
- Snowball your debt to pay it off faster
- Pay off vacation debts with the avalanche method
- Consolidate debt with a home equity loan
- Get another type of consolidation loan
- Take advantage of your tax refund
1. Only spend what you can afford with cash
One of the best ways to avoid the vacation debt cycle is to reduce your vacation debt in the first place. Create a budget for gifts, decorations, food, travel, and other vacation expenses and stick to them. Only plan as much in the holiday month as you can afford to pay in cash.
Are you planning to use credit cards for your vacation expenses? Do it – it might actually be beneficial. Credit cards can provide better security. Many have 0% liability insurance. So if someone gets your card number and makes fraudulent purchases, you are off the hook.
Also, award credit cards can be a great way to earn cash, miles, or points while shopping for the holidays. These rewards can help you get more for your expenses or save money on vacation expenses. Just make sure to put the money aside and pay off the balance immediately to avoid interest costs.
2. Pay off debts as early as possible
In the excitement of the holidays, it’s easy to go over budget. Maybe you are in need of a last minute gift or outfit for an event, or the present you have put yourself on for someone could cost a little more than you planned. While it is important that you make an effort to stay within your budget, overruns do happen and they are not the end of the world.
If this happens to you, pay off any debt you owe in December as soon as possible. As you sit down to prepare your January budget, look at the debt you have from the holidays. Can you pay it off in January so you will only be charged the interest for one month?
For example, if you have $ 500 vacation debt, that’s roughly $ 125 a week. See if you can create a budget plan for the month to accomplish this. If not, switch to a two-month plan. That would be about $ 63 a week, or less than $ 10 a day, that it would take to pay off the debt.
Make paying off debts easier and faster by paying with a low-interest credit card during the vacation. The less interest you pay each month, the faster you can pay off your balance.
3. Apply for a Balance Transfer Card
If you have decent credit, you may be able to get a credit transfer card approved at an introductory price of 0% APR. Implementation periods can range from six months to a year or more, giving you more time to pay off debts without incurring interest expenses. You can transfer vacation credit from higher-yielding cards to a new prepaid transfer card to save money and pay off your debts faster.
4. Reduce unnecessary expenses
Expensive habits can make it difficult to pay off debt. If you want to put a heavier burden on your credit, you should give up one or more luxury items or unnecessary items each month and use this money to pay off debts instead. Consider making the following changes – for a limited time only:
- Cut down on your cable bills and cut down on other maintenance costs
- Cook meals at home instead of eating out
- Group errands together so you drive less and spend less on gasoline
- Forego luxury in the supermarket
- Go for a drink less often a month
5. Snowball your debts to pay them off faster
The snowball method is one way of paying off debt that helps you get excited about the process as you see more movement toward your goal. This is how it works:
- List the debts that you want to pay off, in order from lowest to highest balance.
- Make minimum payments for everything except the lowest balance. Pay as much as you can for it.
- The smallest credit is paid out relatively quickly. Take the amount you paid for that balance and add it to the minimum payment you make for the next lower balance.
- Continue to carry over the amount to the next balance on the line. When you tackle larger balances, you have one large payment to make each month and things can go pretty quickly.
6. Use the avalanche method to pay off vacation debts
An alternative to the snowball method is the avalanche method to repay debt. This method is the same as the snowball method, except that you will rate debts by interest and address the balances with the highest interest rates first. This method can help you save on interest expenses.
7. Consolidate debt with a home loan
If you have equity in your home, you may be able to obtain a home loan to help cover your vacation debt. Depending on your situation, a home equity loan can potentially consolidate more than just vacation spending-related debt.
Home equity options are beneficial because they typically come with much lower interest rates than other forms of debt. This can save you money over time. You’re also struggling with just one monthly payment, which may be more convenient.
The debt is tied to your home, however, so make sure you can actually make the payments. Otherwise, the lender could force you to sell your home to make up for their losses.
8. Get another type of debt consolidation loan
Do you have no equity in your own home or do you want to leave your home? You may be able to qualify for a personal loan to help consolidate your debt. While the interest rate is likely to be higher than a home loan, it can be lower than your credit card interest. You also benefit from a single, more manageable monthly payment.
9. Take advantage of your tax refund
If you know you can get a huge tax refund, you may plan to use it to pay off your vacation debt. Fill out your tax return as early as possible to get the refund sooner and you can even save on interest costs.
How long does it take to pay off vacation debts?
It all depends on you. Plan ahead for the holidays, make sure you have the right credit cards to get the most out of your expenses, and are on budget, and you can stop vacation debt before it even occurs. And if you have to bring forward a credit, you can use our credit card payment calculator to calculate the remaining term.
If you’ve been dealing with vacation debt longer than you would like, your credit status can be important. Good credit can help you access tools like prepaid transfer cards to minimize the cost of your vacation debt. Find out more about your credit now by signing up for ExtraCredit.
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