The debt of the holidays is often unexpected: you visit your relatives, you eat well in beautiful restaurants, you celebrate with your friends and family and you buy the perfect gift to those who are more dear to you. Finally, the new year arrives and your credit account arrives in the mail and you do not really know how you did to spend so much money. It’s January and you have more debt that looks healthy, looking for an option … Do not worry! You can consolidate!
Organize for payments in a priority order
Do not panic. Yes, you have a lot of accounts to pay, but it’s not insurmountable. That said, you need to take an inventory of your accounts and make sure you are able to make your minimum payments on all your accounts every month. Otherwise, you have the chance to do significant damage to your credit rating – something to avoid!
The advantages and disadvantages of balances transfers
So first step, you should now think of transferring the balances of your credit cards at high interest rates to your cards at low rates. If you do not have low interest cards, you can buy one. Be cautious and shop around for credit cards among the options offered by several banks, however – be sure to do your research because each successive credit survey will be rated and may have a negative impact on your credit report. If, by shopping, you find an option at a much lower rate than your existing rate, enjoy!
It is important to note here that several banks apply a fee for balances transfers. Taking this fee into consideration is important because if it turns out to be too high, or if you think you can pay your balances in a short time, it could ruin all the savings you thought you could make with your transfer.
In addition to the transfer fee and the limitation of credit inquiries, there is another factor that needs to be evaluated: is the interest rate that makes your new card so appetizing a promotional offer? If this is the case, once the promotional period has elapsed, what will be your new rate? It is possible, or even probable that it will be significantly higher than your existing rates!
Is a personal loan worth it?
An interesting alternative for consolidating your holiday debts would be to apply for a personal loan. This could allow you to get rid of the high interest balances on your credit cards and pay a single affordable account with a reasonable interest rate every month. Once the loan is approved and your balances are zero, put your credit cards aside and focus on paying off your existing debt. Take advantage of the savings that this consolidation allows you!
At all costs, avoid the common mistake of restarting the use of your credit cards once you have consolidated your balances: this is a magic recipe for you to find yourself in an overwhelming debt situation.
Use your home equity to clear your debt
The last option to evaluate for a holiday debt would be to transfer your balances to a home equity line of credit. This type of loan uses the difference between the value of your mortgage and the value of your home as collateral. You will find in most cases that this type of line of credit has a much more affordable rate than your credit cards. Be careful, however, as these lines of credit often have interest rates that vary by market, so it is possible that your rate will increase over time.