How to consolidate vacation debt
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It is the spirit of giving that makes the holiday season so special. However, it can also push some Americans further into debt.
According to NextAdvisor’s poll, almost a quarter (22%) of Americans expected to go into debt in the New Year due to holiday shopping. Experian reports that this is in addition to existing debt. The average credit card balance for Americans is $ 6,194.
Corbin Blackwell, CFP, a financial advisor at Robo-advisor Betterment, said that people feel pressured to perform while on vacation. There are a lot more invites and a lot more hype around giveaways. Lifestyle activity tends to increase.
Even though the COVID-19 pandemic prevented many from traveling this year due to its severity, people still fall into debt. This is due to the high unemployment rate in the United States. According to creditcards.com, 57% said they would take on more debt while traveling, which is a significant increase from the previous survey.
Bernadette Joy’s $1 rule will help you save money on holidays year-round. If it costs $ 1 per use or less, it is probably not worth it. It’s essential only to buy what you will use often. This makes it easier to manage your occasional splurge and makes it more meaningful.
How to consolidate your vacation debt
You may have multiple credit card balances, particularly at high-interest rates. Consolidating that debt into one payment could be your responsibility. This will simplify your debt repayment and save you money in the long term if you get a lower annual percentage rate (APR). You will pay less interest each month and be able to invest more in your principal balance.
Debt consolidation is not an easy fix. Before considering debt consolidation, you need to have a plan to repay debt and a solid financial budget. You will only be accumulating more debt. Blackwell says, “If you aren’t actually going to run, signing for a marathon will not help.”
After you have done all the planning and strategizing, there are four options to consolidate vacation debt. These include 0% Balance Transfer Credit Card, debt consolidation, second mortgages, and debt management plans. Each approach has its advantages and disadvantages, so you should carefully consider the best for your financial future. No matter which approaches you choose, it is important to ensure that the APR for the consolidation you make is lower than any other loans or cards you have.
1. Credit cards for balance transfers at 0% APR
Balance transfers are when you transfer your balance from one credit card to another with a lower APR or introductory balance transfer rate.
These cards will be more difficult to find in 2020. However, they offer a 0% balance transfer period to tempt you into opening an account. You won’t have to pay interest for the balance you transfer to your credit card for a certain period (usually one year to 18 months), which will help you deliver the principal off more quickly.
The 0% APR credit cards with balance transfers are trendy because they offer great money-saving options for people who want to return to financial health. Blackwell warns that if you don’t take care, it could lead to more spending.
Many people believe they control their finances once they transfer a balance to a card with 0% APR. But Bernadette Joy is the founder of Crush Your Money Goals and contributing editor at NextAdvisor. They come to me…and say that they didn’t do anything with the money after the introductory RPA period. The only thing I did was to delay the inevitable.
Consolidating your debt using a credit card with a balance transfer is advisable. Make sure that you pay the bills on time and in full. Also, be sure to repay your debts before the APR ends. Balance transfer at 0% You could end up paying interest on the balance and reverting to a cycle debt.
2. Consolidate Debt Loans
Consolidated debt loans allow you to combine multiple types of credit cards and personal loans into one fixed-rate payment.
These loans are typically unsecured. This means that you don’t need to use an asset or collateral to secure them. A debt consolidation loan has the advantage of having a fixed repayment term (often three to five years), during which you must repay the loan. If you can keep up with your monthly payments, you will know when the debt is due.
Blackwell says consolidating your debt into one loan is a smart move if you have manageable debt and have missed payments you could make. This isn’t a magic bullet. It is meant to help you get organized.
3. Second mortgage
A home equity loan (HELOC) or home equity line credit (HELOC) might be an option to consolidate your vacation debt if you own a house. These debt consolidation options allow you to borrow against your home’s value and then use the funds to repay your balances. A second mortgage can be more complex than the three previously mentioned options. You will need to meet a loan-to-value ratio (LTV), go through an underwriting process similar to obtaining a mortgage loan, and pay any closing costs and administration fees. They can also be risky: you may lose your home to foreclosure if you fail to pay.
Joy recommends refinancing instead of taking out a HELOC or home equity loan. This is if you have good credit. You may have the option to apply your debt for cash, with a shorter repayment term or a lower interest rate.
4. Debt management plans
A nonprofit credit counseling agency may be able to help you if you feel you are in too much debt. Credit counselors can help with budgeting, negotiating debt terms with creditors, and deciding which loan or credit card to take first. We recommend you consult approved agencies by the National Foundation for Credit Counseling.
How to Avoid Vacation Debt Next Season
It is possible to avoid vacation debt. There are ways to reduce the stress of decorating, shopping for gifts, and traveling.
1. Talk to your family about the possibility.
It can be easy to feel like Santa by having gifts for everyone in the family, but it’s not possible for many people, extended families.
Joy claims she felt the pressure to go to her grandfather’s Christmas Eve dinner, whereas 30 family members would be present. It is a common belief that everyone should receive a gift. “No one has said it but it is known.” She suggested that an organized Secret Santa gift swap among adults be established. This was a year ago and received broad support and relief.
You might be one of many overwhelmed people who are afraid to make a big splash. Joy responded by saying, “Let’s normalize discussing gifts.”
2. All year long planning
Many people feel overwhelmed after Thanksgiving. But it doesn’t have to be this way.
Blackwell says that many people plan for summer vacation but forget to bring gifts. This can help you avoid debt by including this expense in your monthly budget. Intentional savings can also help you to buy a more expensive gift for your loved ones, rather than scrolling through Amazon and Target at the last minute.
3. Resist the temptations of commercials
If you’re tempted to splurge, remember that it’s not a sign of moral weakness. Joy explains, “It’s by design.” “When it comes to vacations, a lot of people are on the gas. You must understand that this is occurring if you are being told to purchase, buy, buy something everywhere you go.
Instead of being depressed by the constant barrage of Christmas sales ads, Joy believes success may motivate. “You have more power than you believe to say no.”