How to Consolidate Vacation Debt
The holiday season is a time of celebration – and of spending. In fact, 61% of consumers with credit card debt planned to increase their balance this holiday season, according to a recent poll from Bankrate’s sister site CreditCards.com.
Unfortunately, any borrowing eventually has to be repaid, plus interest. When you charge vacation debt on a credit card with a Average APR on 17 percent, it is not easy to pay off the principal of your balance.
Vacation Debt Consolidation Options
A smart strategy is to consolidate debt into a new loan on better terms. Most debt consolidation options can help you get a lower interest rate, which means you can pay a lower monthly payment each month and pay off your debt faster.
These debt consolidation options can help you pay off vacation debt faster.
Debt Consolidation Loan
Debt Consolidation Loans Are personal loans. They come with a fixed interest rate, a fixed monthly payment, and a fixed repayment schedule that lets you know exactly when you’ll be debt free. Personal loan rate range from about 5 percent to 36 percent, making it an affordable option for consumers with good to great credit.
- Debt Consolidation Loans are easy to buy and compare online. Some even allow you to be pre-qualified without a serious investigation of your credit report.
- These loans often come with low interest rates and no fees when you have good or excellent credit.
- These loans offer a range of repayment terms, so you can find one that fits your needs.
- If you have bad credit, you will likely pay a higher interest rate.
- Some personal loans have origination fees of up to 6% of your original loan amount.
Balance Transfer Credit Card
A balance transfer credit card can help you get out of debt faster. Balance transfer credit cards offer a 0% APR on balances transferred up to 21 months, although some charge a 3 or 5% balance transfer fee for the privilege.
- Paying off debt at an annual rate of 0% will help you reduce the principal amount of your balance much faster.
- Most 0% APR credit cards do not charge an annual fee.
- Many introductory offers last for 18 or 21 months, which could allow you to fully pay off your debt.
- Once your card introductory offer ends, your interest rate will be reset to the standard variable rate.
- Some cards charge a 3-5% balance transfer fee up front.
Home loan or HELOC
If you have enough equity in your home, you can also borrow against the value of your home to consolidate your debts. Home equity loans are similar to personal loans in that you get a fixed interest rate, a fixed monthly payment, and a fixed repayment. However, you can also opt for a home equity line of credit, or HELOC, which is a line of credit that you can borrow in exchange for a variable APR.
- Home equity loan products can come with high fees and closing costs similar to a residential mortgage.
- You’re using your home as collateral, which means you could lose your property to foreclosure if you don’t pay off your loan.
Borrow from your 401 (k)
A 401 (k) loan allows you to borrow from your retirement savings, only to have your loan repaid through regular payroll deductions. 401 (k) loans allow you to consolidate debt or pay off a large purchase without borrowing money from a bank or third-party lender.
- You can borrow money from yourself rather than from a bank or other lender.
- You no longer have to accumulate unsecured debt.
- 401 (k) loans are subject to limits and you can usually only borrow up to 50% of your acquired account balance.
- If you quit your job, you may need to repay your loan before the end of the tax year to avoid defaults and penalties.
- Not all 401 (k) plans allow loans, so be sure to check with your plan administrator.
- When you borrow from your 401 (k), you are withdrawing money that can grow tax free. The less money in your account, the less money there is that has the potential to grow over time.
Sign up for a debt management plan
Some credit counseling agencies offer debt management plans that can help get you back on track. These plans require you to deposit money into an escrow account each month, which the agency you work with uses to pay credit card bills and other debts you owe. The credit counseling agency will also try to negotiate lower interest rates on your behalf, which can help you pay less interest and get out of debt faster.
- Working with a credit counselor can help you stay disciplined as you pay off your vacation debt.
- Having a third party negotiate the interest rates on your behalf can help if you are overwhelmed by the process.
- Credit counseling agencies pay your bills on your behalf when you’re on a debt management plan, leaving you with just one monthly payment to make each month.
- Debt management plans are generally not free. You will typically pay $ 50 or more per month for the help you receive.
- You will need to be aware of debt management and debt settlement scams as there are many shady businesses operating in this space. Make sure that the companies you are considering don’t charge an upfront fee for their help.
The bottom line
Accumulating vacation debt is easy, but paying it off can take months or even years. If you have too much debt to handle, consolidating debt at a lower interest rate can help you pay less interest over time and pay off your debt faster.
Keep in mind that none of the debt consolidation methods on this list will work if you keep using credit cards and adding to the pile. To get out of debt – and stay away – create a plan to pay it off and stop using your credit cards until you’re debt free.