How to Quickly Pay Down Holiday Debt

A Guide To Getting Out of Debt in the New Year

A young woman pays off her holiday debt.
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Eva Katalin Kondoros / Getty Images

It happens every year: The season of shopping comes around, people overspend, then they are left to figure out how to pay off holiday debt.

With a little careful planning, however, consumers who go beyond their budgets to fill those stockings and spread holiday cheer in a tough year can bounce back quickly and minimize the debt damage.

Assess Your Debt

Not all debt is created equal. To pay off holiday debt in the most strategic way possible, you’ll need to understand the nature of each debt you have. Some of the common types of debt you may have include:

  • Credit cards: Unless it’s a new card, you’re probably paying a set APR on your balance each month.
  • Retail credit cards: If you signed up for it during the holidays, your purchases may be part of a 0% deferred-interest plan that will charge you full interest on your original purchases if you don’t pay off your balance by the end of the 0% period.
  • Personal loans: They usually have a set APR and fixed monthly payments.
  • Buy now, pay later: Financing that’s common with online purchases. It may or may not offer deferred interest. Payments are usually fixed.

Make a list of all your debts, the total amount owed, the minimum payment due, and the interest rates. Then decide which payoff to prioritize.

Budget for Payments

The best way to tackle holiday debt is to put as much money as you can afford toward it. That could mean making a few short-term sacrifices to expand your budget.

Review your income to see how much you have coming in that is used for regular household bills and expenses. If there’s a way to bring in more income by taking some side work or working overtime, go for it. Or maybe you have a holiday bonus coming your way; use it to pay down your debt.

Next, look over your expenses. Are there cuts you can make in recreational spending, subscriptions you can pause, bills you can trim? You can also get creative by selling old items (or gifts that weren’t quite your style), too. The extra savings and found money can help you pay off holiday debt.

Finally, if you accumulated cash-back rewards from your holiday spending, you may be able to apply some of those earnings as a statement credit. That could be a quick and painless way to trim your balance.

Pick a Payment Strategy

Once you figure out how much holiday debt you have and how much income you have to work with, it’s time to strategize. Here are three tried-and-true methods for paying off holiday debt.

The Snowball Method

This debt payoff method recommends that you put your extra money toward your smallest balance first while making minimum payments on the rest. After you pay off the smallest balance, move on to the next smallest balance. This way, you can knock off one debt at a time from your list more quickly and keep yourself motivated toward your overall goal of being debt-free.

The Avalanche Method

A drawback of the debt snowball method is that you could end up paying more in interest if the bigger balances you pay off last have the highest APRs. Through the avalanche method, you use your extra cash to pay down the balances with the highest APR first while making minimum payments on all other balances. Once your first balance is gone, move down your list to the next highest debt.

Consider a Balance Transfer

If you have good credit, you might benefit from opening a new credit card that has a 0% APR offer for balance transfers. You’ll move over high-interest debt to the new card and enjoy a set amount of time to pay it off with no interest. The most competitive balance-transfer offers give you at least 15 months of 0% APR.

Be mindful that many balance-transfer cards will charge an up-front balance-transfer fee (usually 3-5% of the balance). Your goal should be to pay off the balance before the introductory period ends so you avoid paying interest on any balances that remain after your 0% APR ends.

Deferred-Interest Retail Debt First

If you opened store credit cards or picked a buy-now-pay-later option at checkout to finance your holiday purchases, it may benefit you to pay off those balances first. Once the promotional period ends, the issuer will charge you interest on all the purchases you made as part of the promotion. Not only will this slow down your payoff goals, but retail card APRs are, on average, several points higher than the average card.

Stick With Your Plan

As with any goal you set, following through tends to be the biggest hurdle. One of the simplest ways to see your debt payoff through is to automate your minimum payments on your loans and credit cards, then set a date every month (the first Monday of the month, for example) to make an extra payment toward your debt.

Automatic payments can help with any balance transfers or deferred-interest purchases you made, too. For both types of debt, you can follow a simple math formula to ensure you pay off your balance by the time the 0% period ends:

  • Identify the length of the promotional period
  • Divide your balance by the number of months left on the promo period
  • The result is your monthly payment

For example, you use a card with 0% APR for 12 months to buy yourself or your kids a PlayStation 5 with a few accessories. The final bill is $720. Using the equation above, you’ll need to pay $60 a month to eliminate your balance by the end of the promo period ($720/12=$60).

Check your promotional balances about a month before your promo period ends to make sure you’re on track to have the balances paid off.

The Bottom Line

Don’t let your holiday debt payoff plan go the way of most New Year’s resolutions. You want to stick with your strategy so that you can be debt-free as quickly as possible. Keep making all of your minimum payments so that you keep your credit healthy and tackle the cards in the priority order that you decided on.

The more dedicated you are to keeping your budget lean, the sooner you’ll meet your goals. Once you do, consider opening a savings account that’s earmarked for the next holiday season—that way, you can put aside some cash so you don’t repeat the same debt cycle again.