3 ways to pay off Christmas debt
The festive season may be over but Christmas debt can linger for months, unless you tackle it head on.
If you’re finding it difficult to pay off your credit card, then check out these suggestions. We have three ways you can avoid sky-high monthly interest charges, and start your year off on the right financial footing.
1. A credit card balance transfer
Making the minimum repayment on your Christmas debt is a step in the right direction, but you’ll still be stung with a sizeable chunk of interest each month. Instead, think about switching to a balance transfer credit card with a 0% or low-interest rate.
How it works is pretty simple. Search look for a new credit card with an appealing balance transfer offer, apply, get approved and transfer your debt over. The introductory period will give you breathing room to pay off your debt without the extra interest.
You need to be sure you can pay off the debt within the set timeframe as the card reverts back to a higher purchase rate afterwards. A couple of credit card providers offering low-interest rate periods on balance transfers right now include:
- Kiwibank has a current balance transfer offer of 1% p.a. for 12 months on transferred balances
- Westpac credit cards offer 5.95% for the lifetime of the balance, i.e. until you pay it off.
There are a number of providers in the market who offer balance transfer offers, so shop around to make sure you get the best deal.
2. A debt consolidation personal loan
Another option for dealing with the interest on Christmas debt is a debt consolidation personal loan.
Secured personal loans tend to have lower interest rates (typically starting at around 6.95%), than unsecured personal loans. However, the rate you’re quoted will depend on your credit history, income and other factors that will be assessed by the lender. If you get a lower rate than what you’re paying on your outstanding debt, you should be able to save money.
With a debt consolidation loan you’ll have the option of combining debts from a number of sources, from credit cards to other loans. By having just one loan from one lender, you may be able to save money, as well as make repayments easier to manage.
3. Consolidate into your home loan
You can also pay your Christmas debt off completely by encompassing it into your home loan.
This is a more complicated option, but a consideration for those with a mortgage and significant debt. Mortgage rates are at a historic low, so it makes sense to take advantage of this, rather than be crippled by a credit card interest rate of 20.95%, for example.
Home loan debt consolidation can be done a couple of ways:
- Top up your mortgage. Borrow additional money on top of your existing home loan based on the property’s equity. Use this top up money to pay off any debts you have outstanding. Banks usually have restrictions on top ups, such as you must have more than 20% equity and earn enough to make the repayments on the new loan amount.
- Refinance your loan. Get a new mortgage at a better rate and restructure your loan to consolidate your debt. You need to consider the fees and charges involved in refinancing, and determine if the savings outweigh the costs.