5 Tips to Quickly Reduce Holiday Debt in Troubling Times

This holiday season, shoppers who turned to credit cards and other forms of borrowing are facing larger balances due to high inflation and rising interest rates.

Slightly fewer than a third of shoppers took on debt this holiday season, according to a new survey from LendingTree. But the average debt borrowers took on climbed to $1,549, a 24% increase from last year.

The majority of people who took on debt were not planning to do so, up from 54% last year. This shows that more and more people are struggling to make ends meet and are turning to borrowing as a way to make up the difference. This is a worrying trend that could lead to more financial problems down the road.

LendingTree's annual survey found that 37% of shoppers will take five months or longer to pay off their balances, up from 28% last year.

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The online survey was conducted between December 16 and 19, and included 2,050 consumers aged 18 to 76.

Matt Schulz, chief credit analyst at LendingTree, said that it is not surprising that the cost of everything has been rising steadily for the past year.

It's concerning that interest rates are so high and are only expected to rise in the next few months.

According to Schulz, even in the best economic conditions, most people have very little financial margin for error. Inflation can reduce this margin even further, leaving people with very little room to maneuver financially.

There are five steps you can take to pay down your balances faster and reduce the total interest you pay as interest rates rise

1.  Make a budget and stick to it.

2.  Attack your highest-interest debt first.

3.  Make more than the minimum payment.

4.  Consider a balance transfer.

5.  Stay disciplined.Schulz warned that if people do not take action, their debt will only continue to grow.

The annual percentage rate (APR) your credit card company charges you is not set in stone. You may be able to negotiate a lower APR with your credit card company, depending on your credit history and payment history.

You may be able to lower your credit card APR by asking your issuer. A LendingTree survey from earlier this year found that about 70% of requests for lower APRs were granted.

However, the most important thing is to ask for a reduction, Schulz said.

According to Schulz, transferring your outstanding credit card balance to a card with a 0% introductory rate may allow you to avoid accruing interest on your balance for a year or more.

It's important to read the fine print carefully before you apply for a credit card, including any fees, limits and deadlines, said John Ulzheimer, a credit expert.

According to Schulz, if you use a 0% balance transfer credit card wisely, it can be a very powerful tool against credit card debt.

A low interest personal loan may offer a lower interest rate than your current credit cards, making it a more affordable option for borrowing money.

Personal loans typically won't offer the 0% introductory interest rate balance transfer cards provide. However, they will allow you to consolidate multiple types of debt into one loan, which can be helpful if you're struggling to keep up with multiple payments. As Schulz noted, this can make it easier to manage your debt and may help you save money on interest in the long run.

According to Thomas Scanlon, a financial advisor at Raymond James Financial Services in Manchester, Connecticut, if you’re expecting a tax refund next year, that may provide a notable sum to put towards paying down your debts.

If you're expecting a big lump sum back from the IRS or your state, you may want to adjust your tax withholdings. This will make more funds available in your paychecks throughout the year, giving you more money to apply to your debts.

According to Scanlon, this will gradually reduce your debt burden.

He noted that it is important to do a tax projection and adjust your withholding carefully in order to avoid owing money at tax time the following year.

It would be wise to put your credit cards "on ice" or refrain from using them altogether while you focus on paying off your balances, Scanlon said.

He said that even if you're tempted to charge for points or other rewards, it may not be worth it. Interest charges easily eclipse the value of those rewards - especially at current rates.