Key takeaways

  • Holiday debt, particularly credit card debt, can be hard to eliminate due to high interest rates.
  • Debt consolidation involves rolling multiple credit accounts into one with new terms.
  • Consolidating debt could help you save money in interest and get out of debt faster.

More than half of holiday shoppers planned on using a credit card for at least some of their purchases in 2023, according to a Bankrate survey. Most of them (64 percent) expected to pay off their balances in full before interest started accruing.

If you’re unable to pay off your balance before interest comes into play, getting rid of it can be a challenge. This is especially true considering the average credit card has an APR of nearly 21 percent.

Consolidation can make credit card debt more manageable by streamlining repayment and reducing how much you pay. That said, there are multiple ways to go about it. Explore the pros and cons of each to select the strategy that best fits your needs.

Options for consolidating holiday debt

These debt consolidation options may help you pay off holiday debt faster.

Debt consolidation loan

Debt consolidation loans are personal loans that offer a fixed interest rate. You can combine holiday debt from other credit cards or personal loans you may have taken out into a new loan. Instead of paying several creditors monthly, you’ll make one payment over a fixed period — typically between two and five years.

Loan rates range from about 7.5 percent to 36 percent. Be mindful that the lowest interest rates are reserved for borrowers with higher credit scores. Still, debt consolidation loans are affordable if you have good or excellent credit.

These loan products are unsecured, so you won’t need collateral for approval. You can find debt consolidation loans through most traditional banks, credit unions and online lenders.

Pros

  • Interest is fixed, so payments don’t fluctuate.
  • They can have lower interest rates than credit cards.
  • You can combine multiple types of unsecured debt.
  • Wide range of repayment terms.
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Cons

  • Some lenders charge origination fees of up to 12 percent.
  • Hard credit pull needed to apply, which can temporarily hurt your credit.
  • No way to avoid interest.
  • High interest rates if you have bad credit.

Balance transfer credit card

A balance transfer credit card is another way to dig your way out of holiday debt faster. Balance transfer credit cards offer 0 percent introductory APR, which can last up to 21 months, depending on the card issuer. That said, you’ll be charged a balance transfer fee of 3 to 5 percent of your outstanding balance.

If approved for one of these cards, you can move the balances from your high interest rate credit cards to the new card, assuming you have a big enough credit limit. The idea is to pay off the amount you move over before the promotional interest period ends. Otherwise, you’ll pay interest on the remaining balance.

Most major credit card issuers, select banks and credit unions offer balance transfer credit cards.

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Pros

  • You can consolidate multiple credit cards into a single account.
  • Save money by paying off your balance before the 0 percent promotional rate ends
  • You can pay off your principal faster.
  • Many balance transfer cards don’t have an annual fee.
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Cons

  • You’ll likely need good credit to qualify.
  • Some cards charge a 3 to 5 percent balance transfer fee.
  • Ordinary interest will apply to your balance once the 0 percent offer ends.
  • You can only consolidate credit card debt.

Home equity loan or HELOC

If you have enough home equity, you can borrow against your home’s value to consolidate holiday debt.

Home equity loans and home equity lines of credit (HELOCs) act as a second mortgage and allow you to convert some of your equity into cash. Most lenders let you borrow between 75 and 85 percent of your home’s equity.

With a home equity loan, you get a lump sum with a fixed interest rate and repayment term — usually between five to 20 years. HELOCs, on the other hand, allow you to draw funds as needed. They tend to have variable interest rates, usually with a 10-year repayment term.

Home equity loans and HELOCs are offered by traditional banks, credit unions and online lenders. But consider using this option as a last resort to consolidate holiday debt since you could lose your home if you default on the payments.

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Pros

  • They tend to offer lower rates than unsecured personal loans.
  • You could still get a competitive rate, even with less-than-stellar credit.
  • Longer repayment terms can make your monthly bill more manageable.
  • Access to larger loan amounts than most debt consolidation loans.
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Cons

  • Hefty fees similar to those of a mortgage.
  • Your house could be on the line if you default on payments.
  • Funding can take a while.

401(k) loan

A 401(k) loan lets you borrow against your retirement savings. These loans offer a swift application process since there’s no extensive paperwork required for approval. You also don’t need to pass a credit check for approval. Repayment is quite convenient, too, as the funds are automatically withdrawn from your future paychecks.

The caveat is that you may face a tax penalty if you leave your job before paying off the loan. You’ll need to contact your plan administrator to get a 401(k) loan. You may also request a 401(k) loan online by logging into your account.

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Pros

  • No credit check required.
  • Quick approval process.
  • Convenient repayment terms.
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Cons

  • The loan amount is limited to 50 percent of your vested balance.
  • A tax penalty may be assessed if you leave your job while in repayment.
  • Limited investment growth.
  • Not offered by all 401(k) administrators.

Debt management plan

Credit counseling agencies typically offer debt management plans.

These plans require you to deposit money into an escrow account each month, which the agency you’re working with uses to pay credit card bills and other unsecured debts you owe. The credit counseling agency will also try to negotiate concessions on your behalf, like lower interest rates and fee waivers, which can help you pay less in interest and get out of debt faster.

If you default on the payments, however, you could be removed from the debt management plan and lose creditor concessions. Creditors who agree to the plan could also close your accounts until all the balances are paid in full.

Before you sign up, do your research to find a credit counseling agency that’s experienced, has a solid track record and operates as a non-profit.

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Pros

  • Working with a credit counselor can help you stay on track.
  • Counselors can negotiate with creditors to get more favorable terms.
  • You could save a lot of money.
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Cons

  • Debt management plans typically require a setup fee.
  • Some creditors may limit access to accounts until the balance is paid off.
  • Requires discipline and commitment.
  • Failing to make payments could result in plan annulment.

The bottom line

Racking up holiday debt is easy, but paying it off can take months or even years. If you have too much debt to handle, consolidating debt can help you pay less interest over time and pay off debt faster.

Just remember none of the debt consolidation methods on this list will work if you keep using credit cards and adding to the pile. To get out of debt — and stay out — identify what got you in debt in the first place and avoid falling into any harmful habits again.

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