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Accumulating debt during the holiday season is quite common, yet the struggle to repay it can disrupt your financial stability for years to come. Despite this, many Americans continue to embrace the trend of borrowing. According to a 2019 survey by CreditCards.com and YouGov Plc, over half of American consumers with credit card debt viewed the holiday season as a valid reason to incur more debt. Interestingly, even 26% of those without debt expressed a willingness to go into debt during the 2019 holiday period.

As bills begin to arrive and monthly payments start to affect your paycheck, feelings of regret may set in. Unfortunately, by then, it may be too late to reverse your decisions.

If you’ve found yourself in holiday debt and are eager to find a way out, consider consolidating your debts and developing a structured repayment plan. Here’s a straightforward approach to help you.

Step 1: Evaluate your financial situation and calculate your debts

The initial step toward overcoming holiday debt might be the most challenging, as it requires confronting your spending habits. Take the time to compile a complete list of your credit card balances and other related debts from the holiday season to gauge your total obligation.

Formulating a repayment strategy will be significantly easier if you clearly document each debt, including the interest rates and current balances, in one accessible format. A sample format might look like this:

Step 2: Select a debt consolidation approach

After gaining clarity on your total debt, the next step is to determine the most effective way to consolidate and pay it off. Though several alternatives exist, two of the most common methods for debt consolidation are 0% APR credit cards and personal loans.

Balance transfer credit cards

With balance transfer credit cards, you can transfer existing balances from other cards at a 0% APR for a promotional period ranging from nine to 21 months. A balance transfer fee, typically between 3% to 5% of the transferred amount, might apply initially; however, the potential savings on interest can make this fee worthwhile if you are committed to quickly eliminating your debt at 0% interest.

This option is particularly advantageous for those who can expedite payment, as the 0% APR only lasts for a limited time. When the introductory rate expires, your credit card interest rate will likely escalate to a significantly higher variable rate.

Personal loans

Personal loans offer a viable solution for consolidating debt with a low fixed interest rate, predictable monthly payments, and a defined repayment term. While you will accrue interest on the debt during the repayment period, these loans can have interest rates as low as 4.99% APR for those with favorable credit, making them considerably cheaper than the average credit card APR exceeding 17%.

Loan terms can vary between 12 to 60 months, making personal loans a suitable option for consumers with substantial debt who require more time to pay it off. (See also: 7 Fastest Ways to Recover From Holiday Overspending)

Step 3: Determine the ideal repayment strategy

The most appropriate debt consolidation method hinges on various factors — including your total debt, monthly repayment ability, and how long it will take to eliminate the debt. You can utilize a debt repayment calculator to guide your decisions or perform some basic calculations manually.

For instance, if you accumulated $2,394 in debt, let’s say you opted for a balance transfer credit card offering 0% APR on purchases and balance transfers for 15 months, followed by a variable APR of 14.49% to 25.49%. Additionally, if there are no balance transfer fees for transactions completed within the first 60 days, you could transfer your balances without incurring fees.

To pay off your holiday debt within that 15-month period at 0% APR, you would need to set aside $159.60 each month, avoiding any interest charges.

If that monthly payment is beyond your means, a personal loan with a low fixed interest rate over several years might be a better choice. For example, a personal loan with a 4.99% APR over 36 months would require only $72 in monthly payments, amounting to $189 in total interest paid over the three years.

Step 4: Commit to your plan

Regardless of the debt consolidation route you choose, it’s crucial to establish a definitive plan and adhere to it. Failing to maintain your repayment commitment can result in inadequate progress toward reducing your debt and can exacerbate your financial difficulties.

If you’re concerned about maximizing your debt repayments, consider reducing your discretionary spending temporarily. Simple changes like preparing more home-cooked meals, implementing a temporary freeze on unnecessary expenses, and spending weekends in can accumulate savings to direct toward your debts or to start building an emergency fund.

Also, during the debt repayment phase, avoid creating new debt by using credit or loans. Continued borrowing will only hinder your efforts to eliminate holiday debt, so refraining from credit card usage in favor of cash or debit can keep your finances on track.