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

A vial of some of the first 500,000 of the two million AstraZeneca COVID-19 vaccine doses that Canada has secured through a deal with the Serum Institute of India in partnership with Verity Pharma at a facility in Milton, Ont., on Wednesday, March 3, 2021. THE CANADIAN PRESS/Carlos Osorio - POOL
Alberta begins rolling out AstraZeneca COVID vaccine for those aged 40 or older

There are more than 70 pharmacies offering AstraZeneca, including 26 offering walk-in appointments

A child writes in their school notebook during a home schooling session in Cremona, Alta., Monday, March 23, 2020, amid the worldwide COVID-19 pandemic. Thousands of students in Calgary will shift to online learning as of today in a bid to curb rising COVID-19 infection rates in the city. THE CANADIAN PRESS/Jeff McIntosh
Online classes begin for some Alberta students amid rising COVID-19 cases

Alberta currently has the highest rate of active COVID-19 cases in the country

Volunteers participate in a work-bee at J.J. Collett Natural Area on March 27. (Photo Submitted)
J.J. Collett natural area proceeding with projects

The nature area appeared on a list of parks and nature areas that were “underutilized” by UCP

A vial of some of the first 500,000 of the two million AstraZeneca COVID-19 vaccine doses that Canada secured. THE CANADIAN PRESS/Carlos Osorio
Alberta joins Ontario in lowering minimum age for AstraZeneca vaccine

More than 700,000 doses of AstraZeneca have been administered in this country

In this image from NASA, NASA’s experimental Mars helicopter Ingenuity lands on the surface of Mars Monday, April 19, 2021. The little 4-pound helicopter rose from the dusty red surface into the thin Martian air Monday, achieving the first powered, controlled flight on another planet. (NASA via AP)
VIDEO: NASA’s Mars helicopter takes flight, 1st for another planet

The $85 million helicopter demo was considered high risk, yet high reward

The Rogers logo is photographed in Toronto on Monday, September 30, 2019. THE CANADIAN PRESS/Tijana Martin
Rogers investigating after wireless customers complain of widespread outage

According to Down Detector, problems are being reported in most major Canadian cities

People are shown at a COVID-19 vaccination site in Montreal, Sunday, April 18, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Nothing stopping provinces from offering AstraZeneca vaccine to all adults: Hajdu

Health Canada has licensed the AstraZeneca shot for use in people over the age of 18

Deputy Prime Minister and Minister of Finance Chrystia Freeland responds to a question during Question Period in the House of Commons Tuesday December 8, 2020 in Ottawa. The stage is set for arguably the most important federal budget in recent memory, as the Liberal government prepares to unveil its plan for Canada’s post-pandemic recovery even as a third wave of COVID-19 rages across the country. THE CANADIAN PRESS/Adrian Wyld
Election reticence expected to temper political battle over federal budget

Opposition parties have laid out their own demands in the weeks leading up to the budget

Each spring, the Okanagan Fest-of-Ale is held in Penticton. This year, as a result of the COVID-19 pandemic, the festival will not be held. However, beer is still available. How much do you know about this beverage? (pxfuel.com)
QUIZ: How much do you really know about beer?

Put your knowledge to the test with this short quiz

Pall Bearers carrying the coffin of the Duke of Edinburgh, followed by the Prince of Wales, left and Princess Anne, right, into St George’s Chapel for his funeral, at Windsor Castle, in Windsor, England, Saturday April 17, 2021. (Danny Lawson/Pool via AP)
Trudeau announces $200K donation to Duke of Edinburgh award as Prince Philip laid to rest

A tribute to the late prince’s ‘remarkable life and his selfless service,’ the Prime Minister said Saturday

A vial of some of the first 500,000 AstraZeneca COVID-19 vaccine doses that Canada secured. THE CANADIAN PRESS/Carlos Osorio
Canada’s 2nd blood clot confirmed in Alberta after AstraZeneca vaccine

The male patient, who is in his 60s, is said to be recovering

The funeral of Britain’s Prince Philip in Windsor, England, on Saturday, April 17, 2021. Philip died April 9 at the age of 99. (Kirsty Wigglesworth/AP)
PHOTOS: Prince Philip laid to rest Saturday as sombre queen sits alone

The entire royal procession and funeral took place out of public view within the grounds of Windsor Castle

Most Read