5 Tips on How to Cut Your Holiday Debt and Manage Budget

If your spending went a bit overboard during the holiday season, you’re far from alone. In fact, a LendingTree survey found that the avera...

If your spending went a bit overboard during the holiday season, you’re far from alone. In fact, a LendingTree survey found that the average U.S. resident accumulated about $1,550 in debt over this past Christmas season, a year-over-year 24% increase and the highest in eight years.

5 Tips on How to Cut Your Holiday Debt and Manage Budget

Here’s how to cut your holiday debt down to size:

1. Debt consolidation

This financial strategy rolls all your balances into a single loan with a fixed payment and at a lower interest rate. Since consolidation streamlines your debts, it renders it more manageable and can reduce your stress level. The rate will be based on your credit score, income, and other financial factors.

In addition to your holiday credit card debt, you can consolidate medical bills, personal loans and any other unsecured debt - which means it isn’t backed by collateral like your home or car. As a general rule, an unsecured loan comes with a higher interest rate because the lender is taking more of a risk by foregoing an asset to seize if you fail to pay.

2. Balance transfer

Using a balance transfer card can help you pay off high-interest balances from other credit cards and is considered another way to consolidate your debts. This popular option involves paying off credit card debt by transferring your balances to a new card with a 0% interest rate–at least for some period of time.

If you can find a card offering a 0% introductory interest rate for 12-21 months, you could save thousands of dollars in interest and pay off your debt faster. If you don’t pay off the debt by the end of the promotional period, your interest rate could skyrocket. So, you should only transfer balances if you can pay them off in time. It’s important to note that you may be charged transfer fees upwards of 5% of the amount you’re transferring.

3. The equity you have in your home

Owning a home can be used as more than just a roof over your head. You can borrow against the equity you’ve built up to pay off your high-interest credit card debts. Since these loans usually carry markedly lower interest rates than credit cards or personal loans, you can use one to pay off your debt faster and save hundreds or thousands of dollars in interest.

4. Cash-out refinancing

This type of loan replaces your current home mortgage with another, bigger mortgage. You can use the difference between the two loans to spend on virtually anything, including remodeling, consolidating high-interest debt or other financial needs.

5. Home equity line of credit

Another option is a home equity line of credit, which is a revolving credit line that works like a credit card. You apply for a certain amount based on the equity in your home and then have funds available up to that amount. If you need less than the full amount, you’ll only pay interest on the funds used.

It is important to remember that interest rates on these loans are low because your house serves as loan security, or collateral. That means if you default on payments, the lender has the legal right to sell your home and take the proceeds you owe them.