Who doesn’t love the holidays?
It’s a great time to kick back, relax and enjoy some quality time with those nearest and dearest to you.
While there’s a lot to love, something that many of us dread is opening our credit card statements in January.
You can soften the “bill shock” by following a budget during the holiday season.
But, if you do happen to go over the budget, these two tried-and-true strategies will help you repay your debt efficiently.
The Debt Avalanche Method
The Debt Avalanche Method encourages you to pay off the debt that’s costing you the most—also referred to as the debt with the highest interest rate.
For example, if you have two credit cards—Card #1 with an 18% interest rate and Card #2 with a 28% interest rate—you’d focus on paying off Card #2 using the debt avalanche way.
However, don’t forget to keep paying the minimum payment on all your other credit cards, otherwise you could hurt your credit score.
Creating a budget is a good first step to see how much you can comfortably afford to put towards paying off your overall debt.
The Snowball Method
The second effective way to rid yourself of your holiday debt is the Debt Snowball Method.
This method differs from the first in that it focuses on paying off your smallest balance first.
Using this method may also address paying off the same credit card with the highest interest rate, but it will come down to what card holds your smallest balance.
Using the same example, if Card #1 has an outstanding balance of $1,000 and Card #2 has an outstanding balance of $4,000, you’d pay off Card #1 first with the Snowball Debt Method.
This may seem counter intuitive from an interest savings perspective, but making sure you choose a method that will get you to your end goal of being holiday debt free is most important.
Remember that regardless of which method you choose to use, you will still need to keep making the minimum payments on all of your credit cards.
By creating a plan and sticking to it, you’ll drastically improve your chances of reaching your goal of debt freedom that much sooner.
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