For pretty much all of 2022, consumers grappled with rampant inflation. Many people, in fact, were forced to raid or even deplete their savings accounts just to cover basic expenses, like food and rent.
It’s not surprising, then, to learn that consumers increased their spending in the course of the 2022 holiday season. U.S. retail sales rose 7.6% between Nov. 1 and Dec. 24, 2022 compared to that same time frame in 2021, as per data from Mastercard. And a big reason likely has to do with inflation. But while a healthy level of consumer spending during the holidays is no doubt good news for the economy, it could have consequences at the individual level.
A less than ideal way to start off the new year
Not everyone who spent a lot of money during the 2022 holidays is staring at a pile of debt to start off 2023. But many consumers are no doubt in that boat. And that’s bad news.
First of all, carrying too much credit card debt can cause credit score damage. It can also cost you a lot of money in interest. That’s because some credit cards compound interest on a daily basis. And also, credit cards tend to charge a lot of interest in the first place. So all told, a lingering holiday balance can cause a lot of financial damage.
How to pay off holiday debt quickly
If you spent a fair amount of money during the 2022 holiday season and are now sitting on a pile of debt, you may be eager to shed it quickly so it doesn’t cost you extra and hang over your head. And your first step in starting that process is to assess your different debts.
It may be that you owe money on several credit cards with varying interest rates attached to them. In that case, your best bet is generally to tackle the balance with the highest interest rate first, and then work your way downward. This is also known as the debt avalanche method.
Another option worth looking at is debt consolidation. You can do so via a balance transfer or personal loan. The goal, either way, should be to lower the interest rate you’re paying on your debt. So if you owe money on credit cards with interest rates ranging from 16% to 22%, and you’re able to qualify for a personal loan with an 8% interest rate, it means you’ll pay less interest in the course of knocking out your debt.
If you decide to go the balance transfer route, try to find a card with a 0% introductory APR. That will give you a break from racking up interest for a while as you work to chip away at your debt.
Inflation is making just about everything cost more money these days, so it’s not shocking to see that impact on holiday spending and debt. But if you’re now starting off the new year owing a bunch of money, it’s important to do your best to get rid of it as quickly and efficiently as possible.
