The nature of giving is what makes the Christmas or holiday season very special – but it is sinking some individuals deeper into unnecessary debts. According to recent surveys, more or less a quarter of Americans were expecting they would carry debts into the New Year because of the holiday shopping spree.
According to recent studies, this is on top of their existing obligations: the average card balance per individual in this country is $6,194. Individuals tend to feel a lot of stress and pressure to keep up during the Christmas holidays. There are tons of invitations going out, tons of hype around gift-giving, and going to various parties. Lifestyle activities tend to increase.
Although the Coronavirus Disease-19 pandemic prevented a lot of Americans from traveling, they are still taking on financial obligations – a phenomenon aggravated by the increasing unemployment rate in the country. As a matter of fact, at least 55% of credit card (CC) holders who carry CC debts said they are more than willing to go further into the debt trap because of the holiday season.
A Simple Tip: People should save some money for the holiday season year-round using the one dollar rule: If an item they want to buy does not come out to one dollar or less per use, it is probably not worth it. They need to focus on buying only what they usually use. It makes the occasional splurges both more meaningful and more manageable.
How can you consolidate Christmas holiday debts?
If an individual has high balances on their credit cards, especially at higher IRs or rente rates, there is a good chance that it needs to be consolidated into one small and manageable terms. Not only does it make payoffs a lot simpler, but it can also save them money in the long run if they are able to secure better APR or Annual Percentage Rates.
That way, individuals spend less on IR every month and putting more towards their actual principal loan balance. But consolidating debts is not a silver bullet. People need plans to pay off their debts and solid budgets in place before they can consider this thing. Otherwise, they are just taking on new forms of debt. If they are not going to run, signing up for marathons will not help them.
Once individuals have done the dirty work of strategizing for their lifestyle change, there are the main ways to consolidate these debts that people can consider: zero-percent Annual Percentage Rate balance transfer CCs, loans that can consolidate debts, second housing loans, as well as debt-management schemes.
Every one of these options has its advantages and disadvantages, so people should evaluate which one is the right one for their long-term financial health. No matter what method, borrowers take, they will want to ensure the single Annual Percentage Rate they are consolidating into is much lower compared to the aggregate Annual Percentage Rate of CCs or debentures they are consolidating from.
Intro zero-percent Annual Percentage Rate balance transfer CCs
Balance transfers are when borrowers roll balances of one or more cards onto another card that offers a much lower or intro zero-percent balance transfer Annual Percentage Rate. Although these offers have been pretty challenging to come by in these hard times, these things offer an intro zero-percent balance transfer Annual Percentage Rate period to attract Americans to open accounts with them.
It means for a time (usually from twelve to eighteen months), people don’t need to pay IR on the transferred balance on their card, allowing them to pay down the principal loan a lot quicker. Balance transfer CC is a popular option since a zero-percent Annual Percentage Rate is an excellent money-saving option for people who want to get back on track when it comes to their financial health.
But if they are not careful, it could be a good invitation to spend more money. Borrowers usually think they have a clean slate once they have completed their balance transfer to a zero-percent Annual Percentage Rate card, but that is not the case here. At the end of the intro APR term, they come to financial experts and say they have not done anything with the money.
All they have done is delay what is supposed to happen. Suppose borrowers do decide to consolidate their debts into balance transfer CCs. In that case, they need to make sure that they make payments in full and on time – and that they can afford to pay their debts before the introductory zero-percent balance transfer Annual Percentage Rate offer ends. Otherwise, individuals could be stuck paying the IR on balance and return back into the debt cycle.
Debt consolidation debentures
Loans that can consolidate debts is a type of personal debenture that allows users to combine more than one kind of debt – like personal debentures, CCs, or medical bills – under one fixed-rate monthly payment. These things are usually unsecured. It means that the user will not have to secure the debenture with assets as collateral.
One advantage of debt consolidation debentures is that these things have fixed repayment terms (usually three to five years). During this time, users need to pay off the debenture. It also means they know exactly when their debts will be paid off, assuming they are able to stay on track with the same payments over time.
If they have really manageable obligations and borrowers accidentally miss monthly payments they could have easily made, consolidating into a single debenture makes more sense. Borrowers need to keep in mind that it is not a magic potion. This loan is here to help them get organized.
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Second housing debenture
If the borrower is a property owner, other good alternatives they can consider when consolidating their holiday obligations are HELs or Home Equity Loans and HELOCs or Home Equity Line of Credits. These methods of consolidating debts allow them to borrow against the value of their houses and use the money to pay down the balances on their other loans.
Second, a housing debenture can be pretty hard to get compared to the other three alternatives we have just mentioned since borrowers will need to meet Loan-to-Value thresholds and undergo an underwriting process (just like getting a housing debenture), and pay closing costs and application fees.
These things are also very risky. If they default on their monthly amortizations, they could lose their properties to foreclosure. Instead of taking out HELs or HELOCs, experts suggest refinancing their mortgages to take advantage of low IRs, if they have excellent, even good credits. The freed-up funds flow from lower IRs, or shorter repayment terms can be put towards their debts.
If the person is feeling like they are underwater with their monthly obligations, then getting help from nonprofit credit counseling firms may help. These professionals can help borrowers build budgets, negotiate their debenture’s term with financial institutions, as well as deciding which credit card or loan should be prioritized. Experts recommend looking at firms endorsed by NFCC or the National Foundation for Credit Counseling.
Avoiding holiday debt next year
Debts during this time of the year are not inevitable. While the stress and pressure to decorate, and purchase gifts, as well as gravel, can be pretty high, there are various ways to minimize the budget without minimizing the joy of the Christmas season.
Individuals should talk to their family members about gift-giving
Having gifts to family members can make people feel like Santa Clause on Christmas Day. Still, it is simply not possible for a lot of individuals – especially people with large families. The pressure of attending family reunions on Christmas Eve, where a lot of family members would gather, is almost immeasurable.
No one said it, but it is understood that people should give family members gifts. That is why individuals should suggest an organized secret Santa gift-giving among adults instead of the usual one-gift-per-individual tradition. Most families will meet this proposal with relief and agreement. Families are usually afraid to rock the boat because of the fear of being marked as the Grinch, but people may find that they are not the only ones getting overwhelmed. Families should normalize talking about the tradition of gift-giving.
After Thanksgiving, a lot of Americans find themselves looking for funds to purchase gifts, but this tradition should be changed for good. Most family budget for summer vacations but forget to budget for Christmas gifts. Factoring significant expenses into their monthly budget can go a long way when it comes to avoiding the debt trap. Intentional saving will also mean that they may be able to spend more on expensive gifts for their loved ones instead of checking Amazon or going to a last-minute visit to Target.