Summer is coming to a close, and that means credit card bills for charges made on vacation will soon be arriving. It’s not unusual to go into debt during the summer months, according to finance experts.
“It takes a lot of fortitude to budget for [vacation],” says Jake Serfas, lead financial strategist with O’Dell, Winkfield, Roseman & Shipp in the District of Columbia. “The credit card is such an easy out.”
[Read: 15 Ways to Save for Vacation.]
Unfortunately, credit card debt brings with it hefty interest charges that can quickly compound the cost of a vacation. If you got in over your head during the summer months, here are seven ways to dig out.
1. Dip into your savings. People with money in savings should first consider whether to use that money. “You really should look at those savings and see if it makes sense,” says Bill Handel, vice president of research for Raddon, a Fiserv company which provides research, analysis and guidance to financial institutions. Rather than leave money in an account earning very little interest, Handel suggests withdrawing it to pay off high-interest debt. Then, once the debt is gone, be diligent about replenishing the savings account.
2. Sell your excess. Those who don’t have money in savings could find they have extra money lying around the house in the form of unneeded items. Extra clothing can be taken to consignment stores and old electronics and collectibles may be sold online. Furniture and larger items can be turned into a source of cash by listing them on classified ad sites like Craigslist or local Facebook Marketplace groups. Money from sales can then be used to pay off summer vacation debt.
3. Consolidate the debt. High interest rates are only part of the problem with credit card debt. The other issue is low minimum payments, which can result in a seemingly indefinite repayment period. “You’ll pay two to three times the cost of the vacation in interest payments,” Handel says. A debt consolidation loan is one way to reduce the repayment period and the total cost of the debt. Personal loans are available through many banks and credit unions and allow consumers to pay off debt on a structured schedule that limits overall interest charges.
[Read: 10 Easy Ways to Pay Off Debt.]
4. Take a cash-out auto loan. Tim Garner, senior vice president of marketing and strategy for Digital Federal Credit Union with branches in New England, says there is a loan consolidation option many people overlook. Known as a cash-out auto loan, these are offered by some financial institutions to those with paid off vehicles. Using the vehicle as collateral, you can borrow money based on the value of your car, truck or van.
The benefit of these loans is twofold. Like other debt consolidation loans, a cash-out loan provides a predictable repayment period. Plus, interest rates are often in the single digits. “It can really be one of the least expensive ways to take out a loan,” Garner says.
5. Use your home equity. Those without a paid off car could use the equity in their house to consolidate and accelerate debt repayments. “A home equity line of credit offers a lower rate and an opportunity to deduct the interest,” Garner says. However, a tax deduction for interest is only available to those who itemize their deductions.
6. Reduce retirement contributions. While not ideal, diverting money from retirement funds can be another way to quickly pay off high-interest debt from a vacation. “I would almost always discourage people from taking a 401(k) loan,” Handel says.
However, temporarily reducing contributions to a retirement plan could make sense, particularly if someone is putting more into their 401(k) plan than an employer will match. The caveat to this strategy is that if paying off the debt takes longer than expected or if a person fails to boost their contributions once the credit cards are paid off, their retirement could be negatively impacted.
[Read: 8 Tips for Planning a Volunteer Vacation.]
7. Don’t compound the problem. The key to paying off vacation debt quickly is to avoid inadvertently making the problem worse. That often happens when people consolidate debt while continuing to use their credit cards. “Don’t go back and put another $15,000 on [them],” Serfas says.
Using one of the consolidation strategies above can be an effective way to reduce interest charges and speed up the repayment process, but only if you’re committed to avoiding future debt. That means creating a budget and setting aside money now so next year’s vacation doesn’t go on the card.
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7 Ways to Pay Off Your Summer Vacation Debt Pronto originally appeared on usnews.com
