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

Just Posted

B.C. Centre for Disease Control data showing new cases by local health area for the week of May 2-8. (BCCDC image)
Vancouver Island COVID-19 local case counts the lowest they’ve been all year

On some areas of Island, more than 60 per cent of adults have received a vaccine dose

A nurse gets a swab ready to perform a test on a patient at a drive-in COVID-19 clinic in Montreal, on Wednesday, October 21, 2020. THE CANADIAN PRESS/Paul Chiasson
Island’s daily COVID-19 case count drops below 10 for just the second time in 2021

Province reports 8 new COVID-19 cases on Vancouver Island Wednesday

Photo by Marc Kitteringham, Campbell River Mirror
Campbell River dock fire spread slowed thanks to security guard

Creosote docks pose challenges for fire fighters

Scenes like this one in the dugout are all too frequent for parents and kids arriving to play baseball at Nunns Creek Park these days, spurring a request to the city to let them move to the Sportsplex in Willow Point. Photo from CRMB presentation to City of Campbell River
Safety concerns run Campbell River Minor Baseball out of Nunns Creek Park

Parents say ‘needle and feces sweeps’ have become part of everyday life for the baseball community

The cover of the newly redesigned Beaver Lodge Forest Lands activity guide. Photo courtesy Greenways Land Trust
Greenways redesigns Beaver Lodge activity guide

Guide has helped teach students for over a decade

Prince Rupert was one of the first B.C. communities targeted for mass vaccination after a steep rise in infections. Grey area marks community-wide vaccine distribution. (B.C. Centre for Disease Control)
B.C. tracks big drop in COVID-19 infections after vaccination

Prince Rupert, Indigenous communities show improvement

The AstraZeneca-Oxford University vaccine. (AP/Eranga Jayawardena)
2nd person in B.C. diagnosed with rare blood clotting after AstraZeneca vaccine

The man, in his 40s, is currently receiving care at a hospital in the Fraser Health region

Canada’s demo Hornet soars over the Strait of Georgia near Comox. The F-18 demo team is returning to the Valley for their annual spring training. Photo by Sgt. Robert Bottrill/DND
F-18 flight demo team returning to Vancouver Island for spring training

The team will be in the Comox Valley area from May 16 to 24

Saanich police and a coroner investigated a fatal crash in the 5200-block of West Saanich Road on Feb. 4, 2021. (Devon Bidal/News Staff)
Police determine speed, impairment not factors in fatal Greater Victoria crash

Driver who died veered across centre line into oncoming traffic for unknown reason, police say

Ladysmith RCMP safely escorted the black bear to the woods near Ladysmith Cemetary. (Town of Ladysmith/Facebook photo)
Bow-legged bear returns to Ladysmith, has an appointment with the vet

Brown Drive Park closed as conservation officers search for her after she returned from relocation

Brian Peach rescues ducklings from a storm drain in Smithers May 12. (Lauren L’Orsa video screen shot)
VIDEO: Smithers neighbours rescue ducklings from storm drain

Momma and babies made it safely back to the creek that runs behind Turner Way

Signage for ICBC, the Insurance Corporation of British Columbia, is shown in Victoria, B.C., on February 6, 2018. THE CANADIAN PRESS/Chad Hipolito
$150 refunds issued to eligible customers following ICBC’s switch to ‘enhanced care’

Savings amassed from the insurance policy change will lead to one-time rebates for close to 4 million customers

Pixabay
Island Health: two doctors, new clinic space to avert Port McNeill health crisis

Island Health has leased space to use as an immediate clinic location to avert health crisis

Police investigate a fatal 2011 shooting in a strip mall across from Central City Shopping Centre, which was deemed a gang hit. The Mayor’s Gang Task Force zeroed in on ways to reduce gang involvement and activity. (File photo)
COVID-19 could be a cause in public nature of B.C. gang violence: expert

Martin Bouchard says the pandemic has changed people’s routines and they aren’t getting out of their homes often, which could play a role in the brazen nature of shootings

Most Read