YOU DID IT AGAIN. You spent more than you were planning on holiday gifts for your loved ones, and now you’re stuck with hefty credit card debt — and growing interest charges. Get on track with these helpful tips, and vow not to do it again next year.
Can’t Pay It Off in One Month
If you’ve charged so much that you can’t pay it off in one month, turn your attention to whatever card has the lowest interest rate. “That way, you’ll at least pay less interest over time,” says Gerri Detweiler, director of consumer education at Credit.com.
As an alternative, she says, “You may also be able to use a card with a higher interest rate and then use a low-rate balance transfer to pay it off, and then pay the balance transfer off at little to no interest.”
If you go that route, Detweiler warns to be sure you can pay off the balance by the time the introductory rate expires. Otherwise, your overall costs could be higher
than with the first card. Also, realize that if you’re paying more on your cards, it will be harder to save for the next holiday season. But all things being equal, she says, you are better off with a lower interest rate than a higher interest rate.
If you can’t pay off the card in one month, be sure to pay more than the minimum, says Michael Gibney, a certified financial planner with Highland Financial in Riverdale.
Should You Tap Savings?
If you’ve set aside money in an emergency fund, or you have a home equity line of credit (HELOC) for emergencies, you might wonder if overspending for the holidays qualifies as an emergency.
Nope and never, says Gibney.
“The problem with using this to meet holiday overspending is that people will pay off their cards using a HELOC or similar, and then run up the cards again and be faced with two forms of debt they cannot meet,” he says. Indeed, emergency funds are not meant to be a life preserver for irresponsible spending.
Detweiler says that tapping savings may cause you to be creative in cutting back spending or earning additional income.
How to Get Help
If you think it will take too long to pay off your cards, in part because of high interest rates, it may be time to negotiate with the card companies.
If you’ve been paying on time, it never hurts to ask for a lower rate. “It’s best to do this before you make the purchase, but even after the fact, it’s worth a try,” Detweiler says. However, she recommends you don’t tell the company that you’re in financial trouble. This could trigger an account review and they could lower your credit limit or close the account.
Gibney agrees that it’s always worth a phone call, but you should know your credit score and your payment history. “If these are all is good shape, you may have some leverage.”
And if you are having financial troubles beyond just your holiday debt, call a credit counseling agency for help getting back on track.
Let This Be the Last Time
Whatever strategies you use to pay off the debt, take steps to control yourself in the future.
Gibney recommends avoiding owning multiple cards or being lured by offers associated with some retail cards. “If you have one card, it is much easier to manage and keep in check,” he says. “Every store takes Visa or Mastercard, so find a good rewards card with little to no annual fee and use this only.”
You also should also set a minimum purchase price for using a card, nothing under $50. This will force you to pay cash and will make you more hesitant to buy more than you can afford.
One of Detweiler’s favorite success stories comes from Carrie Rocha, a married mom of two who started the website PocketYourDollars.com after she dug out of $50,000 in credit card debt.
“She said one of their strategies is to stop pretending the holidays don’t come every year,” Detweiler says. “The average consumer typically spends around $750 to $1,200 during the holidays, so if you can just set aside $10 a week (for gifts next year), you’ll be in a much better position.”
Karin Price Mueller, the founder of NJMoneyHelp.com, writes the Bamboozled consumer affairs column for The Star-Ledger, and the Money column and Biz Brain for Inside Jersey. Send your money questions to her at Bamboozled@njadvancemedia.com.