It’s okay to have holiday credit card debt — it’s common. In fact, studies show 41.2% of American households carry some sort of credit card debt1. But if you don’t address your debt and simply make the minimum payment each month, it could hurt you financially. We want to help you handle your debt the right way.
Adjust Your Budget to Prioritize Debt
Due to the high interest rate of credit cards (average of 17.14% APR2), lowering your credit card debt should be priority number one. Rework your budget where you can in order to put more money toward your highest-interest debt. You want to lower that as fast as you can.
This could mean slightly adjusting your lifestyle. Less eating out, less shopping, less unnecessary spending. If you need help with creating a budget, explore the resources available to you through our partner, GreenPath™ Financial Wellness.
Don’t Add to Your Debt
Try to avoid using your credit card until your debt is more manageable. The key is to limit yourself to only buying what you need. Don’t get tempted by sales. If you continue adding to your credit card balance, it will make eliminating your debt much more difficult.
Eliminate Credit Card Debt With a Personal Loan
This one is all in the numbers. Let’s say you have $5,000 of credit card debt and your interest rate is the national average of 17.14% APR2. If your strategy to pay off your credit card is to make the minimum payment each month, we could help you save a significant amount of money. We recommend taking out a Personal Loan, using the borrowed money to pay off your credit card balance, and paying back your Personal Loan at a much lower rate.
Take a look at how that impacts savings and payoff time when you compare a $5,000 Personal Loan and $5,000 of credit card debt.
As you can see, the credit card’s high interest rate causes you to pay much more interest for a much longer period of time. But if you pay off your credit card with a Personal Loan, you could eliminate that debt faster and more affordably.
Start Preparing Now to Avoid Debt Next Year
The most popular strategy is to open a special savings account specifically for holiday shopping. For example, Connexus offers a Holiday Club Savings Account. This account allows you to deposit money throughout the year and access your savings on Oct. 1 before the holidays3. It’s a simple, effective way to save.
Holiday credit card debt is stressful, but it doesn’t have to be. Make a plan, use the tools available to you, and prepare for smarter spending next year. You can do it, and remember we’re here to help.
1 Source: https://www.valuepenguin.com/average-credit-card-debt (as of 11/9/2018).
2 APR = Annual Percentage Rate. Comparison is based using the average national credit card rate of 17.14% APR as of 11/14/18 from www.creditcards.com, a $5,000 balance assuming minimum monthly payments of 3% of total balance, and no additional advances or charges. A $5,000 credit card balance at 17.14% APR with minimum monthly payments of 3% of the balance takes 190 months and $9,273.34 to pay off. Personal Loan is based on a $5,000 loan, 60 month term, 6.99% APR and monthly payments of $98.98 with $5,938.94 to pay off. The difference between $9,273.34 and $5,938.94 is $3,334.40. The difference between 190 months and 60 months is 130 months or 10.83 years. 6.99% APR is our lowest available rate effective 11/21/2018 to 12/25/2018. Enter promotion code LOWRATE in the application process for access to the lowest available rate of 6.99% APR when you register for Digital Banking, subscribe to eStatements, and set up an electronic payment. Subscription to eStatements gives you a 1% discount and setting up an electronic payment gives you an additional 1% discount. Interest rate may increase by the amount of the discount(s) if you no longer meet the requirements. Borrow $5,000 at 6.99% APR for 60 monthly payments of $98.98 or $19.80 per $1,000 borrowed. Minimum loan amount is $5,000. Maximum loan amount is $20,000. Rate may vary on individual credit terms and relationship level. Certain restrictions may apply. Connexus employees are eligible to receive offer. Offer does not apply to Personal Loans currently financed at Connexus Credit Union.
3 Preauthorized automatic transfers, telephone transfers or withdrawals, electronic banking withdrawals and transfers prohibited. Funds will be automatically transferred annually to the savings account on October 1.