Many people go deeper in debt over the holiday season, especially those who have children or grandchildren to buy presents for. The tendency to overspend is fueled by holiday spirit and a desire to bring smiles to the faces of loved ones.
When the holiday cheer subsides, it's time to pay the bill. Credit card balances go up daily. Holiday loan payments need to be added to the budget. Folks can get into serious financial trouble quickly if these are not attended to. What can they do to lower that debt?
Lower Interest Rates with a Consolidation Loan
Interest rates on credit card balances are high. Borrowers with good credit can usually find consolidation loans from direct lenders with lower interest rates. That could save them hundreds or even thousands of dollars over the length of their loan.
Consolidation loans are unsecured personal loans, so rates may be higher, but they'll still beat the credit card companies. Those who go this route can also expect higher interest rates for longer-term loans. Opting for a shorter term with higher monthly payments is preferable if you can keep up with the monthly payments.
Refinance Existing Loans to Get Better Rates and Terms
There are two ways to look at this. People with existing loans can refinance to extend the life of the loan, lowering monthly payments for short term liquidity. They can also refinance for a better interest rate if one happens to be available. The choice is dependent on lifestyle; it definitely might be worth comparing interest rates.
Individuals who want more cash on hand for short term expenses should look into the first option, extending the life of the loan. Borrowers with a desire to get out of debt sooner may want to consider refinancing for a lower rate and increasing their monthly payments.
Establish a Payoff Method without Additional Borrowing
Borrowing from one institution to pay off another may not be appealing to some consumers. The goal is to get out of debt, so many people opt to just simply pay their credit card bills. There are two common payoff methods to do this:
- Snowball Method: Set aside a certain amount every month to cover credit card bills. Pay all minimum balances and then put any left-over money on the credit cards with the lowest balances until they are paid in full. Once the lowest balance is paid, that money "snowballs" into the next-lowest balance, and so on.
- Avalanche Method: Similar to the snowball method, but the excess is put on the credit card with the highest interest rate. By doing that, credit card holders can quickly lower the average interest rate they are paying on debt.
Stop Using Credit Cards for a Few Months
One of the best ways to get out of debt is to not create any new debt. This is a lifestyle change. For many people, it helps to switch from credit cards to debit cards and cash instead. This helps make consumers more conscious of their spending habits.
Credit cards with high limits look really attractive when they first come in, but credit card holders can get easily buried in debt because that spending doesn't seem to be taking money out of their pocket right now.
Another advantage to this technique is that credit card balances will be lower when the holidays begin next year. Pay them off and start shopping early by paying cash for everything. Those who do this will have a stress-free January next year.
Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: How to Lower Debt From Holiday Loans
