Your kids may have forgotten about the gifts you got them last year, but there’s a good chance your credit card companies have been reveling in your generosity all year long.
That’s because a quarter of all parents reported they’re still paying off debt from last year’s holiday gift purchases, according to a YouGov Parent Survey.
And yes, your kid may have ignored the toys in favor of the boxes they came in, but you shouldn’t ignore last year’s credit card bills if you’re piling additional expenses on the January statement.
But there’s no need to go all Grinch when it comes to a payment strategy. We’re getting festive with three wintry ways to pay down your debt so that the Christmas spirit — not the debt — lasts all year long.
3 Strategies for Paying Off Holiday Debt
Do you want to tackle last year’s holiday debt before Santa slides down your chimney this year? Then let it snow!
1. Debt Avalanche Method
If debt payoff is at the top on your Christmas list this year, the Debt Avalanche Method (aka debt stacking method) could be the best present under your tree.
For this strategy, you’ll prioritize paying off the debt with the highest rate first. After paying the minimum payments for each card, put any additional money toward the card with the highest interest rate, then tackle the next highest and so on down the list.
When making a list of your debts, leave off any that are outside of the statute of limitations (it varies by state). Creditors can’t sue you for old unpaid debt, aka zombie debt.
Because you’ll save money in interest over the long term, Avalanche offers the most bang for your Rudolph. (Get it? male deer = buck. I’ll stop.)
2. Debt Snowball Method
Let’s face it: If you’re paying off last year’s holiday debt, there’s a good chance you like the immediate gratification — that’s what holiday cheer is all about, right?
You can get the same kind of debt payoff joy without delay by using the Debt Snowball Method.
Here’s how it works: Pay off your credit card balances in ascending order, throwing any extra money beyond the minimum payment toward the credit card with the smallest balance first. As soon as you pay off one bill, you put all that extra money toward the next highest balance.
Snowball isn’t quite as financially advantageous as Avalanche, since you may end up paying more in interest (although the amount is rarely significant). But knocking out a balance more quickly may be the incentive you need to keep plowing through last year’s holiday debt.
3. Debt Snowflake Method
OK, we get it: Putting a big dent in last year’s holiday debt is tough when you still want to enjoy this year’s holiday season. So instead of making grand plans, consider thinking small — like, snowflake small.
For the Debt Snowflake Method, anytime you can save money on a purchase, use that “savings” to pay down your debt.
For example: Instead of buying your usual extra-large peppermint latte for $7, downsize to the smaller version for $4. Before you make another purchase, put that $3 in savings toward your credit card debt.
If you’re using the Snowflake method, continue making your normal monthly minimum payment in addition to the extra mini payments.
Those smaller payments can really pile up, so long as you use the money for a debt payment immediately — before the savings melt away into another purchase.
Snowflake is usually best used in conjunction with other methods, since it’s unlikely you’ll pay off thousands of dollars in debts with only tiny payments.
However, it could be the easy way to help you start paying off debts this holiday season, setting up good habits that you can ho-ho-hold over into the new year.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.