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How a Personal Loan Can Help You Tackle New Holiday Debt

How a Personal Loan Can Help You Tackle New Holiday Debt IMG v2
Fiona Staff1/13/2023

Between travel, meals, experiences, and gifts for loved ones, it’s no surprise that consumer spending often peaks around the holiday season. In recent years, though, this spending has increased to now-record levels, leaving many families facing high balances come January. 

According to the most recent data, about 35% of Americans spent their way into debt for the 2022 holiday season, with an accumulated average of $1,549 in new debt. Of those individuals, nearly two-thirds of them expect to still be paying off that debt five months from now. 

Carrying around new debt can be costly, especially if most of your holiday buying was done on a high-interest credit card. Rather than spend all of 2023 working to pay down those ever-compounding balances, here’s a look at how a personal loan can help you tackle your new holiday debt.

Why Use a Personal Loan on Holiday Debt?

Unlike revolving credit card accounts, a personal loan is an installment debt. This means that you’ll borrow a single lump sum amount which will be repaid with monthly payments over a defined period of time. Most personal loans also have a fixed interest rate along with a set payment amount. 

Whether you’re carrying around one credit card balance or ten, here’s why a personal loan might be the best option to consider for paying off that Christmas spending.

It makes paying off your balance(s) simpler and more convenient 

The average American consumer has 3.84 credit card accounts to their name. If you put your holiday spending on more than one of these, you’ll find yourself juggling multiple due dates and payment minimums as well as tracking multiple outstanding balances. It can get confusing! 

And if you miss one of those payments? You’ll find yourself facing late fees and even interest rate penalties, which will cost you more money.

By taking out a personal loan, you can consolidate multiple credit card balances — in addition to charge cards, loans, etc. — into one single account. Your personal loan will have just one monthly payment to track and one due date, simplifying the repayment process.

You can save money on interest charges

Credit cards can have extremely high interest rates, compounding the finance charges you’ll pay and amplifying the overall cost of your debt. Personal loans, by contrast, have average interest rates that are only about half of those charged on revolving credit card accounts. 

By moving your holiday credit card debt to a personal loan, you’ll often reduce your interest rate and eliminate the compounding nature of revolving credit card accounts. This will make your debt repayment more affordable and save you money!

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You may be able to avoid added fees and expenses

Credit cards have certain fees and expenses that you’ll need to watch out for, depending on how you manage your account. Some credit cards charge an annual fee, for instance, which is an added cost simply for holding and using the account. 

Personal loans don’t usually have these sorts of fees. Instead of keeping a credit card account open while you pay down the balance, you can shift that debt to a personal loan and save yourself the annual fee come renewal time.

You’ll improve your credit score

One of the factors in calculating your credit score is how much of your available credit you are utilizing. The higher your credit card balances — especially compared to your overall limit — the more your score could be impacted.

By paying off your credit card balance(s) with a personal loan, you are able to free up your revolving accounts and lower your credit utilization. In many cases, this can give your credit score an immediate boost.

You can get cash for other upcoming expenses

Personal loans aren’t just great for consolidating and refinancing your existing debt. You can also use them to borrow cash for upcoming purchases or projects!

If you have a big trip planned for the summer, are looking to make improvements to your home, or want to finally tackle that home renovation project, the right personal loan can help you accomplish all of your financial goals at once. 

As long as you qualify, this loan can be used to both pay off holiday debt on your credit cards and also take out extra funds for upcoming expenses, with just one new balance and payment to track.

Alternatives to Personal Loans for Your Holiday Debt

Not sure if a personal loan is the right product for paying off Christmas spending? Some other options to consider include:

  • Borrowing against your home’s equity with a HELOC

  • Taking advantage of a 0% APR balance transfer credit card offer

Bottom Line

The holidays are an exciting — but often expensive — time of year, between travel to see loved ones, gifts for family and friends, and meals shared with others. If you’re coming out of the holiday season with new debt, a personal loan could be one great way to simplify those balances and potentially pay less in interest overall.

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