Paying Off Holiday Credit Card Debt

Did you spend more than you should have on holiday gifts and all the trimmings this past holiday season?  If so, opening your January credit card bill may have left you with an extreme credit card hangover.  Don’t lament over past financial indiscretions.  What’s done is done.  It’s time to roll up your sleeves and get down to the business of paying off your credit card debt.

How to Pay Off Your Credit Card Balances

Working yourself out of debt will take determination and some sacrifices on your part, but you can do it if you follow these tips and strategies to pay off your credit card balances.

• Back away from the cards! Put your credit cards in a drawer and forget about them. Face it…if you don’t break your dependence on using credit cards, you’ll never get the Debt Monkey off your back.

• Pay on time.  If the creditor adds a late fee, your minimum payment goes up for the next month and a larger finance charge gets added onto that if you don’t pay the full payment that month.  Don’t help the credit card companies dig your hole deeper!

• Pay more than the minimum payment each month.  The minimum payment, generally about 2 - 3% of the outstanding balance, is the merely the interest amount due on the principal.  If you only pay the minimum payment each month, you’re fighting a losing battle; you will never be able to pay off the balance.  

• Cut back on the discretionary funds.  This is where making sacrifices comes in…take another look at your monthly expenses.  You’ll be surprised at how much extra money you can “find” if you cut back on all those the little extras.  Get up ten minutes earlier and make coffee before you head to work instead of stopping at Starbucks.  While the coffee brews, put together a brown bag from home and skip eating lunch out.  Increasing your payments can save you hundreds of dollars in interest (depending on your balance), and get you to your end goal of being debt-free that much faster.

• Transfer debt to a card with a lower rate.  Is your card that carries the lowest rate at its maximum balance?  If not, look at transferring debt from a high-rate credit card to the lower-rate card.  If you’re paying less interest, more of your money will go toward paying off the balance.

• Harness the power of the snowball.  Picture a snowball rolling downhill.  As it rolls it grows in size and picks up speed.  The method of “snowballing” your credit card payments works in the same way to pay down your debt.  If you owe balances on more than one credit card, earmark the card that carries the highest interest rate and target the balance on that card.  Continue to pay the minimum balances on your other cards while you direct all the extra “found” funds toward paying off the balance on your “target” card.  When you zero out the balance on that card, shift to the next card on your hit list, until you’ve paid off your debt.  Each month, as you decrease your debts (and the snowball keeps rolling), you increase the power you have to knock off the remaining debt.

• Shift from save mode to pay-off mode.  Yes, we all need to save more money.  But if you’re in debt, keeping a savings account while you’re hemmoraging money to pay credit card interest is only hurting your bottom line.  Think about it.  How much interest does your bank pay on your savings account?  How much money do you continue to pay in credit card interest every month?  You do the math.  Your money is best served by paying off the debt first.

• Give yourself a reality check. While you’re working to pay off debt, if feel discouraged and are tempted to dig the credit card out of the drawer…STOP!  Instead, dig out your credit card statements from the past couple years and add up what you paid in finance and interest charges.  I’ll bet you’ll be absolutely dumbfounded at the money that you lost to credit card debt.  Now imagine what you could have done with that money instead…maybe put money down to buy a new home or cruise to some exotic locale.

Following these steps can help you eliminate your credit card debt.  But if you were already in a predicament before the holidays, don’t let it drag out any further.  Contact your creditors and fill them in on your situation.  Request a lower repayment schedule and a reduced interest rate.  In most cases, creditors will negotiate better terms rather than risk writing off your debt as a total loss. 

Once you’ve freed yourself from credit card debt, don’t fall back into old habits.  Prepare ahead for next holiday season; plan a holiday gift budget and get started on saving so you can pay cash next time around.  Think about gift giving in a whole new way.  After all, the ones you love would surely forgo a gift rather than see you struggle with credit card debt ever again.

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