Las Vegas Sun

March 28, 2024

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Holiday Hangover: Consolidating loans and credit cards

AFCU native 1820

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Many of us overspend during the holidays—between traveling, gifts, parties and basic living expenses, January can bring hefty bills. "If seasonal spending has left you burdened with debt, it's wise to explore options for repayment. Depending on your financial situation, getting a personal loan to consolidate balances may help," said Nicole Cypers, Vice President of Public Relations at America First Credit Union. Here are some tips for mitigating holiday debt.

Cut back

If you're bringing debt into the new year, it's time to get back on track. Evaluate your spending habits, as well as the costs of necessities, then tighten up your budget until your debt is repaid. This might mean forgoing the morning's coffee, bringing your lunch to work and more. Little changes add up.

For those who are dealing with an overwhelming amount of debt, talking to your financial institution or a credit counselor is a best practice.

Prioritize Debt

Take a hard look at how much you owe and to whom. "The balance with the highest interest rate should be your top priority," Cypers said. "Especially if you have multiple credit cards." It's best to avoid carrying a balance month-to-month, but if you do, at least pay it down strategically.

Consider consolidating

Consolidating multiple loans into one payment is an option. Typically, this strategy involves taking out a lower-rate personal loan and using it to repay smaller, high-rate balances. "Loan consolidation may be an effective way to manage holiday debt. It's not a solution for all consumers, but there are times when it works," Cypers added. "It's also important to understand consolidation before determining if it's appropriate for you."

If your credit card debt is relatively low, but you have multiple balances and want to simplify, you may be able to consolidate with a personal loan. Look into what you'll qualify for and whether the offered rate is lower than what you're paying. Remember: When you consolidate, you still have to pay back what you owe, you're just moving to a new plan. Ideally, you should be able to pay back this new loan more quickly and at a lower rate.

"Shop around for a loan that will accomplish your goals. If your credit is good, you should be able to find an unsecured loan at a low rate. Alternatively, a secured loan with assets as collateral may allow you to begin rebuilding your credit," Cypers said. Credit unions often provide lower rates and more flexibility than banks, so it's worth exploring different financial institutions.

Consolidating may not be advantageous if you have lots consumer debt or intend to carry balances on your cards after they are paid in full. "It defeats the purpose if you take on a loan to pay off a card with a lump sum, then go right back to charging up the balance. You should only consider this type of loan if you're going to pair it with better spending habits," Cypers said.

Take advantage of tax time

Your tax return can be a great asset for paying down debt in the new year. If you're expecting a refund, plan to file as early as possible to get it sooner—you don't want to sit on credit card balances until April.