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How to cut your holiday debt

Many Americans racked up credit card debt over the holidays. Fortunately, there are a variety of ways to pay it off. unknown/Getty Images

The holidays are an expensive time for many. In fact, a new survey showed the average American racked up nearly $1,550 in debt during the most recent Christmas season. 

That's up 24% from a year ago and the highest holiday debt load in at least eight years.

Fortunately, if you're one of the many who have incurred debt to make the season bright, there are ways to tackle it. 

How to cut your holiday debt

Here are four options for dealing with holiday debt (and, many times, even reducing what it costs you).

1. Get a debt consolidation loan

Debt consolidation loans are a type of personal loan that you use to pay off other debts. It sounds a little counterintuitive, but because these loans tend to have much lower interest rates than credit cards do, this strategy can usually save you quite a bit in long-term interest.

Here's an example: Say you have $4,000 on a credit card with an 18% rate. If you take out a debt consolidation loan at a 9% rate and use that money to pay off your credit cards, you've essentially cut your interest rate in half. Depending on how long you take to pay off the loan, it could save you thousands in interest over time.

You can get a free savings estimate online now to see exactly how much a debt consolidation loan would save you.

2. Borrow against your home equity

If you're a homeowner, borrowing against your home equity can be a low-cost way to manage debt. These loans tend to have much lower interest rates than credit cards (and personal loans, for that matter), allowing you to save even more in the long run.

There are many options, too. There are cash-out refinances, which replace your current mortgage loan with a larger one, giving you the difference back in cash. You can easily explore your cash-out refinance options here now to see exactly what you would qualify for.

And for seniors, there's the reverse mortgage. These work backward, with the lender paying you out of your home equity rather than you making payments to them. 

You can also get a home equity loan, which gives you a lump-sum payment you can use toward those debts, or you can opt for a home equity line of credit (HELOC). These work like credit cards and allow you to withdraw only the money you need. 

3. Withdraw money from your life insurance

Another option is to withdraw money from your life insurance policy if you have one. This is only possible with permanent life insurance policies, like whole life insurance or universal life insurance. Term life insurance policies won't offer a cash withdrawal option.

If you do choose to take cash out of your policy, just keep in mind that it will reduce its value, as well as the payout your loved ones would get should you pass away.

Get a free life insurance estmate online now to learn more. 

4. Get a balance transfer credit card

Balance transfer cards can be an option, too. These cards typically come with promotional interest rates (often 0%) for a limited time. Once you have one, you can transfer your various credit card balances to it and enjoy interest-free payments for a year or sometimes two. 

Just be sure and pay off the balance before that rate expires, as it could jump considerably once it does. You should also be aware of any transfer fees the card charges. These can sometimes be as much as 5% of the balance you're transferring.

There are many ways to get out of debt

If you racked up credit card debt on holiday spending, you have options. Aside from the strategies outlined above, there are also credit counseling agencies that can help. You can also contact a financial professional for personalized debt help and budgeting guidance.

Get a free savings estimate online today to see if a debt consolidation works for you.

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