Tips to Beat Back the Credit Card Crunch

Spent a lot on gifts over the holidays? Maybe even max out your credit card? In this article, we offer a few tips and tricks to help you manage—and minimize—your post-holiday debts.

The holiday season is one of the biggest spending periods of the year. Americans, for instance, spend an average of $886 on gifts, while the average US household spends roughly $1,536 over this period. That’s a lot of Christmas cheer!

Shopping sprees and trips to the beach may be a lot of fun, but when January rolls around, we’re left with maxed out credit cards and eyebrow-raising bills. In 2019, for instance, it was reported that 22% of Americans went into debt paying for Christmas. And with increased rates of unemployment and rising costs due to inflation, people are really feeling the squeeze.

Fortunately, there are a few tips and tricks to help you manage your post-holiday financial blues. So let’s dive in.

Why is debt a problem during the holidays?

Over the holidays, people tend to spend a lot more than normal, whether because of buying gifts for family and friends or going on vacation (or both). And if you have a big family or travel to a far-flung location, things can get pricey fast.

For families that don’t have the extra cash on hand, most of this spending will be in the form of credit cards. Only the problem is, credit cards typically have some of the highest interest rates out there, averaging out at 15.91% in 2021.

This is where things can get out of control. Due to their high rates of interest, credit card debt can grow very quickly. So if you rack up more debt than usual in December, that can significantly hurt your finances over time.

The holidays are supposed to be a period of relaxation, of spending quality time with your loved ones. You don’t want to spoil all that because you’re worried about how much you’re going to have to repay. If you can avoid going into debt all together, great, but if you can’t, the good news is that you can still avoid having to pay a 15% interest rate by doing what’s called debt refinancing.

What is debt refinancing?

Debt refinancing is when you apply for a new loan or debt instrument that has better terms than the previous debt. In this case, that means a lower interest rate than the exorbitant credit card rates discussed above. By taking out a loan with a lower interest rate, you can immediately pay down what you owe at the high interest rate and effectively “move” that debt to this better rate. And that means paying far less on interest in the long run.

One common form of debt refinancing is to leverage the equity of your home at a lower interest rate than the average credit card. Not only do mortgage rates tend to be a lot lower than credit card rates—especially these days—they have long amortization periods (aka repayment terms), which allows you to reduce the amount of your monthly payments and increase your cash flow month to month. And with that extra money on hand, you can use it to pay off your debt faster, make investments, or offset future credit card purchases.

In short, debt refinancing is cheaper than paying off credit card interest—sometimes a lot cheaper—so if you’ve got credit card debt, talk to one of our financial advisors about debt refinancing today.

What about debt consolidation?

Another important aspect to refinancing is what’s called debt consolidation, which is where you put all of your debt into a single monthly payment. That way, if you’re dealing with multiple debts initially, you combine it all under one new loan (ideally one with better interest rates and/or repayment terms), which simplifies the process of paying back the money you borrowed because you only need to focus on making one payment each month.

Not only does debt consolidation save you time managing different sources of debt, it gives you a good picture of your overall debt, holds you accountable to paying a monthly amount, tells you roughly when you can pay it all off.

Final Thoughts

With holiday spending comes post-holiday credit card debt, where extremely high interest rates can put a strain on your family’s finances. To help manage those New Year blues, debt refinancing and debt consolidation are key tools that can help save you money in the long term and improve your cash flow in the short. So don’t wait for the interest to pile up—let Integrity Tree help.

Santa recommends it.

To learn more about how to manage and minimize your post-holiday debt, get in touch with one of our expert advisors and we’d be delighted to help.