3 ways to deal with a New Year debt hangover

38% of Australians started the New Year in debt – here's how you can pay it off faster.

Finder research shows most Australians with Christmas debt plan to pay it off in the next 5 months.

But there are still a lot of people who will need longer than that.

This includes more than 600,000 people who say it will take 12 months or more to repay their Christmas debt.

But debt costs more the longer you have it.

This is because interest and/or fees add to the balance.

As an example, say you put the average Christmas spend of $1,479 on a credit card with an interest rate of 19.82% (the average standard rate according to the Reserve Bank of Australia).

If it took a year to pay off the balance, you'd be charged around $163 in interest.

Paying off debt faster means you'll save on costs and have one less bill to think about.

So, here are 3 realistic ways to deal with debt in the New Year.

1. Take advantage of 0% balance transfer offers

Balance transfer credit cards offer a low or 0% interest rate for an introductory period when you move your debt to the new card.

This gives you time to pay off your debt without interest charges adding to the balance.

And saving on interest also means you could pay it off faster.

Right now, there are credit cards that offer 0% interest on balance transfers for up to 32 months.

The key is to pay off the balance during the interest-free period (after that, a higher rate applies to the remaining balance).

So think about how long it will take to repay your debt (or use a repayment calculator), then find a card that fits your goals.

2. Consolidate your debts

If you're paying off a few credit cards, buy now pay later or other accounts, it can quickly become overwhelming.

Debt consolidation can help you save time and money by bringing all your balances together in one account.

That means you only have to deal with one repayment and one set of account costs.

Depending on the debts, you could consolidate them onto a personal loan or balance transfer credit card.

(You can also consolidate debt by refinancing your mortgage, but make sure you factor in the long-term impact when considering this option.)

3. Dip into your savings

Finder research shows the average Australian had $37,975 in savings in October 2023.

While you might have more or less than this, it's worth thinking about using some savings to pay off debt.

This is especially true for any debt that has high interest charges or high fees.

Because once you pay off the debt, you can put that money back towards your saving goals.

Even if you only put a small amount of savings towards the debt, it can help make it more manageable.

And if you don't have any savings, look for ways to cut down on other costs.

For example, eating out, entertainment or other non-essentials that can take a backseat while you pay off your debt.

You can also save on essentials by reviewing your energy, internet, insurance and other bills to see if there are better options available to you.

Remember, these are just temporary changes to help you get on track with your money in the new year.

And if you need support, you can chat with a financial counsellor for free by calling 1800 007 007 or using the online chat service on the National Debt Helpline website.

This article was updated on 22 January 2024 to note the potential savings people can get by reviewing their essential expenses and plans.