Holiday knick-knacks stand are displayed for Christmas shoppers Friday, Oct. 2, 2020, at a Lowes store in Northglenn, Colo. Add last-minute holiday shopping to the list of time-honored traditions being upended by the coronavirus pandemic. Retailers are kicking off the holiday season earlier than ever this year in hopes of avoiding big in-store crowds and shipping bottlenecks in November and December. (AP Photo/David Zalubowski)

Holiday knick-knacks stand are displayed for Christmas shoppers Friday, Oct. 2, 2020, at a Lowes store in Northglenn, Colo. Add last-minute holiday shopping to the list of time-honored traditions being upended by the coronavirus pandemic. Retailers are kicking off the holiday season earlier than ever this year in hopes of avoiding big in-store crowds and shipping bottlenecks in November and December. (AP Photo/David Zalubowski)

Millennial Money: De-stress holiday debt with a payoff plan

Take stock of what you owe – and what you can pay

In a holiday season that many of us will spend apart from loved ones, gift-giving might feel even more important than usual. After all, if you can’t travel to see family, at least you can see them unwrap gifts over a video call, right?

And just as many families will use a video service for holiday celebrations this year, many will also turn to credit cards to cover their expressions of love. Three-quarters of holiday shoppers are planning to use credit cards to purchase gifts this year, according to a NerdWallet survey of 2,049 U.S. adults conducted online by The Harris Poll.

Using credit cards can be a great way to earn rewards or get cash back, but make sure you know how to dig out of the debt you ring up. Otherwise, you might be still paying off the debt late into next year, something 33% of 2019 holiday shoppers who used credit cards said they were still doing when surveyed in September.

Here’s how to handle holiday debt.

Take stock of what you owe – and what you can pay

First, catalogue your holiday debt. Log into each credit account and note the balance and interest rate. Consider creating a simple spreadsheet or using a debt tracker to keep accounts organized. If you have debt that’s not on a credit card, such as a shopping loan from a company like Klarna, list that, too.

With your debts sorted, turn to your budget. The 50/30/20 budget is an easy template. With this approach, half of take-home pay goes toward necessities, like housing and groceries. Then, 30% goes toward wants, like takeout or a nice bottle of Champagne to celebrate bidding farewell to 2020 on New Year’s Eve. Lastly, 20% of your income goes toward debt and savings.

As you hash out your budget, pin down how much money you can allocate toward debt each month. Divide the total debt by that amount to estimate how fast you can rid yourself of debt, keeping in mind that accruing interest can increase the balances.

Focusing on what you can pay monthly helps make your debt more manageable, says Kathleen Burns Kingsbury, a Vermont-based wealth psychology expert who helps people understand the personal factors of money decisions.

“Ask what you can reasonably pay off each week or each month and really work at achieving it,” Burns Kingsbury says. “From a psychological standpoint, this helps you feel a sense of success, and the more successful you feel, the more motivated you are to continue that behaviour.”

Find your payoff path

Your best route to resolving holiday debt depends on your cash flow, credit score and personal preferences. Here are a few:

— PAY OFF THE FULL BALANCE WITH THE FIRST STATEMENT: If you have the cash, this is the fastest way to deal with debt — and the cheapest, since you avoid paying interest. According to the NerdWallet shopping survey, 35% of holiday shoppers who added credit card debt in 2019 took this approach.

— ROLL A SNOWBALL OR KICK OFF AN AVALANCHE: The “debt snowball” and “debt avalanche” are two popular debt payoff methods. Which is right for you depends on your financial priorities.

With the debt snowball method, you focus on paying off the smallest balance first, then roll the amount you were paying on that first debt into the next largest. The amount you’re paying on the focus debt keeps growing, like a snowball rolling downhill. You might choose this if you need the early wins from paying off the first accounts to keep you motivated.

The debt avalanche method may be best if you want to pay as little in interest as possible. With this route, you prioritize paying off the debt with the highest interest rate first, regardless of balance size. Again, when that first debt is done, you put the amount you were paying on that into the next highest interest account, repeating until you’re debt-free.

— CONSIDER A BALANCE TRANSFER CARD: To avoid costly credit card interest, look into taking out a balance transfer credit card with a 0% APR promotional period, says Mike Cocco, an Equitable financial adviser based in Nutley, New Jersey.

“Once you have that, you’re eliminating interest, which can allow you to pay off debt a lot quicker,” Cocco says. “Then, be cognizant of when the 0% APR period runs out and work backwards to create a reverse Christmas Club for paying off your debt. If you have $1,000 on the card and 12 months interest-free, you have to pay at least $83 a month.”

To get a 0% balance transfer offer, you’ll need good to excellent credit. In general, that means a score of 690 or higher, although credit scores alone don’t guarantee approval. Issuers will look at your income, existing debts and other information.

Regardless of which debt payoff method you choose, the important thing is to find a plan and commit to it. Taking decisive action to resolve your debt can ensure you are debt-free faster — and maybe let you start building up savings for the 2021 holiday season.

Sean Pyles Of Nerdwallet, The Associated Press

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Condemned building of the Twin Gables Motel in Crofton is not safe and yet a teen has been climbing around on the roof while others were ripping the siding off the building. (Photo submitted)
Destructive behaviour by teens wreaking havoc on Crofton

Residents becoming fed up with the constant vandalism and fires

The Regional District of Nanaimo has its sights set on busing to the Cowichan Valley in time for March 2022. (News Bulletin file)
Bus link between Nanaimo and the Cowichan Valley expected by next March

Unallocated transit hours already in Regional District of Nanaimo budget

A drug bust on Government Street in Duncan on Tuesday, March 30, led to a “substantial seizure” according to the North Cowichan/Duncan RCMP. (File photo)
OPINION: School police liaison programs help keep kids and community safe

School liaison programs help build trust between youth and police, Duck Paterson writes

After many years of hard work, the Ladysmith Health Care Auxiliary completed its expansion and earned a VIREB commercial building award in the process. (Submitted photo)
Ladysmith Thrift Store wins VIREB commercial building award for best renovation

The renovated space was unveiled on November 14, 2020

Ladysmith RCMP safely escorted the black bear to the woods near Ladysmith Cemetary. (Town of Ladysmith/Facebook photo)
UPDATE: Black bear tranquillized, being relocated by conservation officers

A juvenile black bear was spotted near 2nd Avenue earlier Friday morning

A bullet hole is seen in the windshield of an RCMP vehicle approximately 4 km from Vancouver International Airport after a one person was killed during a shooting outside the international departures terminal at the airport, in Richmond, B.C., Sunday, May 9, 2021. THE CANADIAN PRESS/Darryl Dyck
Homicide team IDs man in fatal YVR shooting as police grapple with spate of gang violence

Man, 20, charged in separate fatal shooting Burnaby over the weekend

Two-year-old Kashius Weme rides at the Steve Smith Memorial Bike Park in Nanaimo on Tuesday, May 11. The youngster’s precocious bike-riding ability is already attracting cycle sponsors. (Chris Bush/News Bulletin)
2-year-old bike rider on Vancouver Island already attracting cycle sponsors

Nanaimo’s Kashius Weme has a knack for extreme cycle sports

Keith MacIntyre - BC Libertarian
Penticton’s Keith MacIntyre new leader of the B.C. Libertarian Party

The Penticton businessman was voted in by members of the party on May 8

RCMP are searching for Philip Toner, who is a 'person of interest' in the investigation of a suspicious death in Kootenay National Park last week. Photo courtesy BC RCMP.
Man sought in suspicious Kootenay death found in Lake Country

Philip Toner is a person of interest in the death of Brenda Ware

Vernon North Okanagan RCMP reported to 287 mental health calls between Jan. 1, 2021, and May 1. (Black Press files)
‘It’s not the police’s responsibility to deal with mental health calls’: Vernon RCMP

RCMP remind public to take care of mental health and well-being, while better solutions are sought

Thompson Rivers University campus is in Kamloops, B.C. (KTW file photo)
Thompson Rivers the 1st B.C. university to supply free menstrual products

The university will offer the products this September

Fraser Health is using ‘targeted’ vaccination clinics in high-risk areas of the Lower Mainland. (Fraser Health photo)
B.C.’s COVID-19 decrease continues, 515 new cases Tuesday

426 seriously ill people in hospital, up from 415 Monday

A scene from the Schoolhouse Squat from October 2018, where Alliance Against Displacement members and supporters occupied the Rutherford Elementary School site, advocating for people experiencing homelessness. (News Bulletin file)
‘Schoolhouse Squat’ activists get conditional discharge in Nanaimo school occupation

Ivan Donald Drury, Tingchun (Listen) Chen sentenced in provincial court in Nanaimo

The site of Sunfest, Laketown Ranch, will be open for camping this summer. (Citizen file)
Sunfest country music bash won’t be shining on B.C. in 2021

Annual Vancouver Island Festival cancelled due to COVID-19, along with Laketown Shakedown

Most Read