Editorial Policy

8 ways to pay off holiday debt faster

Allie Johnson

January 4, 2013

Pulling out the plastic might have seemed like a good idea when you had a long holiday gift list and a short supply of cash. But now that the wrapping paper has been thrown away, the tree hauled to the curb and your credit card bill is here, you might be wishing you had splurged less.

If you racked up debt during the holiday season, you’re not alone. In a survey conducted by myFICO.com before the holidays, about one-quarter of consumers said it would take them more than three months to pay off their holiday debt.

Don’t want to be stuck still paying off holiday debt in March? You can pay it off faster. Here’s how.

1. Get motivated. One way to get enthused about paying off your debt is to crunch numbers. You can use an online credit card calculator to find out exactly how much interest you’ll pay over, say, two months versus six months. Just knowing you’ll keep more money in your pocket might motivate you, but you could also set mini goals and give yourself a reward for each one you meet.

“Everyone has different ways of getting motivated,” says Bruce McClary, director of media relations for ClearPoint Credit Counseling Solutions, a nonprofit credit counseling and education organization. “For some people, the fact that the debt is hanging out there is motivation enough.”

2. Stop using your cards. If your cards got a workout over the holidays, you might have gotten into the habit of pulling out the plastic for little extras. Maybe you’re still justifying those luxuries as holiday spending even though New Year’s Day has come and gone. It’s important to stop now if you want to see your balances go down.

“Simply stop using your credit cards and start paying them off,” says Sheri Stuart, education department manager for Springboard Nonprofit Consumer Credit Management, which provides personal finance education and credit counseling to consumers.

3. Make a plan of attack. To accomplish your goals, you need to create a plan. If you have debt on more than one card, some experts recommend focusing first on paying off the card with the lowest balance to get a quick win and keep yourself motivated by seeing that statement with a zero balance. Others recommend attacking the one with the highest interest rate, which will save you the most money.

“You have to choose the method that works best for you,” McClary says.

4. Raid your gift stockpile. There is one often overlooked source of post-holiday cash: the gifts you received. Don’t go too far. No one is suggesting you take that thoughtful gift from your spouse and hawk it on eBay.

“People shouldn’t deprive themselves of all the joy of Christmas,” McClary says.

But paying off your debt is a gift to yourself, so consider taking the $50 Grandma gave you and sending it to your credit card company. Or, sell those Macy’s gift cards for a little less than face value. Even the too-small sweater from Old Navy can be turned into cash if you’re willing to wait in line to return it.

5. Cut out the fat in your budget. Take a look at your budget and find some places to cut corners temporarily. Consider cutting out the morning Starbucks or the Wednesday night takeout for a few months. (Bonus: that can help you with your New Year’s resolution to get healthier, too.)

“When you’re clear of the debt, then you can put some things back in your budget as a reward,” McClary says.

6. Look beyond your daily latte. When poring over your budget to find extra funds for debt repayment, also look at line items you wouldn’t normally view as discretionary — like transportation costs. Consider biking to work, taking the bus or sharing rides with a coworker for a few months. You could even ask your employer to let you telecommute one or two days a week, McClary suggests.

“Cutting back a little on travel can save you a lot of money at the gas pump,” he says.

7. Make more money. If you’ve trimmed your budget and still come up short, find a way to bring in some extra money. Sell your used books, get a part-time job or even start a side business.

“Maybe you have a hobby you can turn into something that will bring in extra money,” Stuart says.

8. Plan for next year. Once you’ve paid off this year’s festivities, think ahead to avoid debt next year. Experts recommend making a holiday budget (hint: look at how much you spent this year) and setting up a savings account to start socking away cash now. Many banks and credit unions offer Christmas clubs, which allow you to automatically set aside a certain amount regularly, McClary says. He also recommends thinking ahead about how you’ll approach the season in the future, so you can have just as much joy for less money. That could include anything from making Christmas dinner a potluck to creating more presents by hand to shopping for holiday gifts year-round so you can snag items on sale.

“Planning ahead makes all the difference in the world,” he says.