Paying down your high-interest-rate debts can be frustrating. It can take time. It can take diligence. It can take patience.
The task becomes even tougher at holiday time when everyone is in the mood to spend rather than save. It can help to know that others are in the same boat as you. The total amount of U.S. consumer debt grew $800 billion in 2020 to a record high of $14.88 trillion, according to consumer credit reporting company Experian.Read More »
The two most important loans to pay down are loans on credit cards and personal loans. They generally have high interest rates and the sooner you pay them down the better for your pocketbook.
A way to help to pay down high-interest-rate loans is to earn additional cash by taking up a side gig or a part-time job. Another way to have some cash to pay them down is to say “no” to buying items that you do not need right now.
Here are three items of helpful advice to help you cope at holiday time from myFICO, the consumer division of FICO, a data analytics company based in San Jose, Calif.
Plan in advance
You might be accustomed to celebrating by buying additional items during holiday time, such as Thanksgiving, Christmas, and Hanukkah. You can still allow yourself to continue to enjoy the holidays and you can continue to celebrate the festivities in the traditional way. You can, however, undertake some adjustments to your finances as you celebrate.
First off, create a budget for the additional expenditures you will incur. In doing so, you can set aside money to apply toward your goals of eliminating your debt and keeping your spending under control at the same time.
If you find you are unable to cut expenses because your budget already is so tight, you might need to cut back on your spending over the holidays. It is more advisable to plan ahead for some spending rather than to put those expenses on a credit card that you will have to determine how to pay off—including high interest—at a later date.
Find ways to save money
Become creative with your money at holiday time and make your dollars go farther. Should you find ways in which you can enjoy the holidays with less cash than you set aside in your budget to do so, that comes as a bonus.
Here are ways to inspire you to stretch your dollars:
• Use your credit-card rewards.
The holidays are a great time to redeem those credit-card rewards that might have been building up over the year. You can use that money—either as cash, a gift card, or as a credit on your credit card—to pay for meals, holiday gifts, and in other ways.
Using these rewards can avoid you having to use cash for gifts that you can instead apply toward eliminating your debt.
• Use your talents.
If you are able to make items yourself, such as crafts, those kind of gifts will not only cost you little money but also will be more meaningful to the receiver than items you buy in the store. Home-made items will leave you with cash to use toward paying down your debt.
Your talent also could include mowing the lawn for family and friends, cleaning the house, or whatever might be suitable for them.
• Consider a no-gift holiday.
Your family and friends might be in the same situation in which you find yourself. They might agree, therefore, that a no-spend holiday is a good idea. The resulting relief in pressure financially might help you all to enjoy the season even more.
Use your bonuses
Many people receive bonuses near the end of the year. Should you receive gift cards, additional cash, or gift certificates, consider using them on gifts for friends rather than for yourself. Sure, it could be fun to splurge on yourself with your bonus, particularly if it is fairly large, but you might find it more satisfying to spend the money on others—or at least a substantial part of it—and avoid using your debt-payoff money.
Paying down your debt, especially at holiday time, is a wise way to use your financial resources that has its own reward.
As you set out to eliminate your debt, particularly on credit cards and personal loans, you can not only save money on interest, but you will find your monthly budget considerably easier to manage.
As a bonus, you might even improve your FICO credit score. You might want to reduce your efforts to pay off your debt at holiday time, myFICO adds, but avoid cutting those efforts out completely. Every dollar that you save and add to paying off your high-interest debt is a step in the long road to eliminating it completely.