Home » Financial Education » How to Tackle Holiday Debt Before the New Year

How to Tackle Holiday Debt Before the New Year

How to Tackle Holiday Debt Before the New Year

*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated Dec 04, 2018, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

If you’re one of the many shoppers hitting the stores this holiday season, you may find yourself struggling to avoid falling into debt as your purchases add up. You may need to get gifts for family and friends, pay for travel, entertain guests and more, which can all get out of hand rather quickly.

If you find yourself resorting to racking up many of these expenses on your credit cards without any idea how you’re going to pay them off, you may find yourself with more debt than you can handle in the new year.

CompareCards.com’s holiday shopping survey found that 37% of credit card holders plan on spending more this season compared with last season. With the added costs, more consumers are likely to find themselves in debt come January. And, history shows that the average amount of debt per consumer will increase. From 2016 to 2017, holiday debt increased 5% according to the annual holiday debt survey by MagnifyMoney, which is also owned by LendingTree.

“The holidays are already stressful enough,” said Matt Schulz, CompareCards chief industry analyst. “Don’t make things worse on yourself by taking on a ton of debt that will last well into the new year.”

We’ll discuss tips on how you can get a head start on holiday debt you’ve already obtained or expect to accrue over the next few weeks, as well as provide steps to take to avoid future debt so you can start 2019 debt-free.

Use rewards points and cash back to your advantage

If you still have a lot of shopping left to do and have a rewards credit card, you can use any points or cash back you’ve accrued to redeem for gifts. Many cards offer gift cards and merchandise as redemption options, allowing you to simply apply points in exchange for a gift card to a restaurant or store from your card’s rewards portal.

If you have already finished your holiday shopping and are now left with a hefty bill, you can still use any rewards you’ve earned to your advantage as you also can redeem points or cash back for a statement credit to cover some or all of your holiday shopping costs.

Know that the rewards you earn with your credit card may not be ready to redeem immediately as they are typically added to your account when you receive your next statement. Also, some cards may set minimum redemption amounts, meaning you may have to wait until you earn a certain amount of cash back before you can redeem it for a statement credit. For example, the Citi® Double Cash Card – 18 month BT offer requires you to have at least $25 in cash back before you can complete any redemptions. So, if you have a $23.54 cash rewards balance, you won’t be able to redeem rewards until your balance is at least $25.

Take advantage of a special financing offer

Holiday shopping can wreak havoc on your budget if you’re not careful, but it doesn’t have to land you in debt. If you often carry a balance month to month or plan on spending more than you can afford to pay off by your bill’s due date, your balance can rack up high interest charges. To combat interest charges from inflating your debt, you can turn to a credit card offering an intro 0% APR period for purchases to finance holiday spending. These cards provide anywhere from six to 15 months of interest-free financing, so you can take the time you need to pay off expenses without accruing interest. Keep in mind that you still need to make monthly minimum payments.

Beware: Unlike intro 0% APR credit cards from the major banks, store cards that offer special financing have often deferred interest terms. Deferred interest takes effect when you use a promotional financing offer and don’t pay what you owe in full before that promotional period ends. If that happens, you’ll be hit with all the interest that you avoided during the financing period, starting from the original purchase date. As a result, if you are tempted to use a low- or no-interest special financing offer for a specified period of time from a store card, you have to be especially diligent in paying off your balance in full before the promotional period ends.

Top intro 0% APR cards:

  • Earn a $150 Bonus after spending $500 on purchases in your first 3 months from account opening.

  • 0% Intro APR on purchases and balance transfers for 15 months

  • 16.99% - 25.74% Variable

Highlights
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 16.99-25.74%. Balance transfer fee is 3% of the amount transferred, $5 minimum
  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
  • Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate
  • Enjoy new 5% categories each quarter
  • Unlimited 1% cash back on all other purchases - it's automatic
  • Cash Back rewards do not expire as long as your account is open and there is no minimum to redeem for cash back.
  • Free credit score, updated weekly with Credit Journey?
  • No annual fee

See additional details for Chase Freedom®

More Info

  • Unlimited 1.5% Cash Back on every purchase, every day

  • 0% for 15 Months on Purchases and Balance Transfers

  • No minimums for redeeming and cash back won't expire for the life of the account

Highlights
  • One-time $150 cash bonus after you spend $500 on purchases within 3 months from account opening
  • Earn unlimited 1.5% cash back on every purchase, every day
  • No rotating categories or sign-ups needed to earn cash rewards; plus, cash back won't expire for the life of the account and there's no limit to how much you can earn
  • 0% intro APR on purchases for 15 months; 14.74%-24.74% variable APR after that
  • 0% intro APR on balance transfers for 15 months; 14.74%-24.74% variable APR after that; 3% fee on the amounts transferred within the first 15 months
  • Pay no annual fee or foreign transaction fees

See additional details for Capital One® Quicksilver® Cash Rewards Credit Card

More Info

  • $150 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.

  • 3% at U.S. supermarkets on up to $6,000 per year in purchases*

  • 2% cash back at U.S. gas stations and at select U.S. department stores, 1% back on other purchases.

Highlights
  • $150 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
  • 3% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%).
  • 2% cash back at U.S. gas stations and at select U.S. department stores, 1% back on other purchases.
  • Low intro APR: 0% for 15 months on purchases and balance transfers, then a variable rate, currently 14.99% to 25.99%.
  • Over 1.5 million more places in the U.S. started accepting American Express® Cards in 2017.
  • Cash back is received in the form of Reward Dollars that can be easily redeemed for statement credits, gift cards, and merchandise.
  • No annual fee.
  • Terms Apply.
  • See Rates & Fees

See additional details for Blue Cash Everyday® Card from American Express

More Info

Explore 0% balance transfer deals

A balance transfer can be a great way to avoid incurring interest on holiday debt and is similar to a special financing offer by providing an intro 0% APR period for transferred balances for a specified period. You can transfer high-interest debt you’ve accrued on your current credit card to a balance transfer credit card that advertises no interest for a certain number of months. This allows you more time to pay off your debt interest-free. Note, you may incur a fee — typically 3-5% — per transfer, but it’s often outweighed by the amount you save on interest. However, there are several balance transfer credit cards with no transfer fee.

Top balance transfer cards:

  • 0%* for 12 months on Purchases*

  • 0%* for 21 months on Balance Transfers*

  • 15.99% - 25.99%* (Variable)

Highlights
  • The ONLY card with No Late Fees, No Penalty Rate, and No Annual Fee… EVER
  • 0% Intro APR on balance transfers for 21 months from date of first transfer. All transfers must be completed in first 4 months. After that, the variable APR will be 15.99% - 25.99%, based on your creditworthiness.
  • 0% Intro APR on purchases for 12 months from date of account opening. After that, the variable APR will be 15.99% - 25.99%, based on your creditworthiness.          
  • If you transfer a balance with this offer, after your 0% Intro purchase APR expires, both new purchases and unpaid purchase balances will automatically accrue interest until all balances, including your transferred balances, are paid in full. 
  • There is a balance transfer fee of either $5 or 5% of the amount of each transfer, whichever is greater
  • The same great rate for all balances, after the introductory period
  • Save time when you call with fast, personal help, 24 hours a day – just say “representative”
  • Enjoy the convenience of setting up your own bill payment schedule on any available due date throughout the month

See additional details for Citi Simplicity® Card - No Late Fees Ever

More Info

  • Earn 2% cash back on purchases: 1% when you buy plus 1% as you pay

  • 0% for 18 months on Balance Transfers*

  • 15.49% - 25.49%* (Variable)

Highlights
  • Earn 2% cash back on purchases: 1% when you buy plus 1% as you pay
  • Balance Transfers do not earn cash back
  • 0% Intro APR on Balance Transfers for 18 months. After that, the variable APR will be 15.49% - 25.49% based on your creditworthiness*
  • No categories to track, no caps on cash back, no annual fee*

See additional details for Citi® Double Cash Card – 18 month BT offer

More Info

  • 0% for 18 Months*

  • Earn 5% cash back at different places each quarter up to the quarterly maximum, when you activate*

  • 13.99% - 24.99% Variable*

Highlights
  • INTRO OFFER: Discover will match ALL the cash back you've earned at the end of your first year, automatically. There's no signing up. And no limit to how much is matched.
  • Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate. Plus, earn unlimited 1% cash back on all other purchases - automatically.
  • Redeem cash back any amount, any time. Rewards never expire.
  • 100% U.S. based customer service.
  • Get your free Credit Scorecard with your FICO® Credit Score, number of recent inquiries and more.
  • Receive FREE Social Security number alerts-Discover will monitor thousands of risky websites when you sign up.
  • No annual fee.
  • See Rates & Fees

See additional details for Discover it® Balance Transfer

More Info

Tips for preventing future debt

Regardless if you have current or past issues with debt, or have never been in debt before, there are certain tips you should follow to prevent owing more than you can pay off in a timely manner.

“Americans need to focus on knocking down their debt, starting today,” said Schulz. “The truth is that interest rates are rising and no one expects that to change anytime soon. That means that it’s only going to take longer and get more and more expensive to pay down that debt.”

Even if you follow all the steps below, that won’t make debt 100% preventable. An emergency can arise that may hinder your debt-free plans, but you can always bounce back. Try to stick to the following advice to put yourself in the best financial situation in case anything unexpected happens.

  • Create a budget. The reason you may fall into debt may be overspending, and creating a budget is a great way to get a clear picture of your spending habits to see where you have opportunities to cut costs. There are numerous budgeting apps and online tools that can help you get started. Many are free and often link directly to your bank accounts for easy expense tracking. You can compare budgeting apps at MagnifyMoney.
  • Pay your bills on time and in full. Having a good payment history is not only a key factor of your credit score but critical to avoid unnecessary fees and interest charges, which may make paying down card balances more difficult. By paying on time and in full each month, you’ll avoid late payment fees, interest charges and penalty APRs (which increase your interest rate when you pay late), as well as prevent debt. If you have trouble remembering when your bill is due, set up autopay or sign up for reminders from your issuer. Also, many cards allow you to select your payment due date, so you can choose the day that works best for you.
  • Start an emergency fund. Sometimes the debt you incur isn’t due to overspending, but happens when an unexpected event occurs, such as a medical emergency or car accident. If you take the time to set up and regularly contribute to an emergency fund, you can have a safety net for instances that may arise.
  • Resist overspending to earn rewards or receive discounts. Stores always have some sort of promotion or deal going on during the holidays, whether it’s free shipping if you spend a certain amount, “buy more, save more” deals or other discounts that can tempt you to spend more than you initially planned. Try to resist temptation and ask yourself if you really need to spend that unplanned, extra amount.

Recommended Posts: