Digging Out From Holiday Debt

Well, the holidays have come and gone, and many of us are beginning to receive our credit card statements.  If you’re like most Americans, your holiday debt might make things a little difficult in 2012.  Fortunately, it looks like the 2011 holiday season was successful for most retailers. This is great news for the economy, but what does it mean for your wallet?  In November, we witnessed the biggest growth in credit card debt in more than a decade, with consumers charging $5 billion dollars.  We’re still far away from the peak of American indebtedness, which totaled $972 billion in September 2008, but we’re also in a different financial climate – a climate where more debt can cause a fair amount of problems.

So, what do you do if you got in a little over your head during the holidays? Let’s take a look at some of the methods you can use to resolve your credit card debt in 2012.  First, gather your credit card statements and make a list of the debts you’ve accumulated throughout the season.  Getting a better idea of what you owe will help you to set reasonable goals for repayment. For instance, you’ll have to determine how much money you have left over in your monthly Spending Plan to help tackle these new credit card payments. You can only do that after you’ve determined just how much debt you’re dealing with. This is also a good opportunity to review your budget and update your spending plan.  Remember that you need to make much more than the minimum payment to make a dent in your balances. If you can’t see yourself paying more than the minimum, start trimming some other expenses. A few temporary cutbacks now will help you save enough to pay down your debt faster.

In order to maximize your repayment, there are a number of strategies you can use.   If your credit is in good standing, and you don’t have a lot of credit cards, you may consider taking advantage of a 0% interest balance transfer offer so you can reduce the total amount of interest you’ll pay on your debt. If you know you won’t be able to pay off the full amount of holiday debt you accumulated within the next two or three months, spread it out over six or twelve months at a no-interest rate and pay down that debt as quickly as possible. Again, you may have to make some accommodations in your Spending Plan to manage these payments. It’s important to keep in mind, however, that if you accept a 0% offer, you’re opening a new line of credit, which will cause your credit score to drop, at least somewhat. You’ll also have to factor in the cost of transferring the balance to the new card, generally around 3% of the amount you’re bringing over. Also, be sure you’re aware of what the interest rate will be after the promotional period is over so you don’t end up repaying any remainder at a high interest rate.  You can also use your holiday bonus or tax refund to attack your holiday debt, if you’re filing early. Paying off that debt quickly will relieve some financial anxiety and make it easier to budget other sources of income you have throughout the year.

Now, these remedies, the benefits of budgeting, knowing who you owe, and making a plan to get out of debt – are proven strategies.  However, a do-it-yourself approach won’t work for everyone. Some folks require more specific, personalized attention. People struggle with their finances for a wide variety of reasons, and there are often a number of important factors contributing to their situation. The best way to create a successful plan to alleviate credit card debt is through customized advice. Many Americans are still dealing with stagnant incomes, under-employment, the threat of foreclosure, and an unsure economic future. These issues can complicate a family’s finances, but non-profit credit counseling agencies, including Cambridge Credit Counseling, offer professional advice for free. Counselors take the time to get to know an individual’s circumstances and goals, working with the consumer to create a plan appropriate to the situation.  The non-profit counselor’s mission is to empower people to take control of their finances as they pay down their debts, safely and responsibly.  Until next time, I’m Thomas Fox for Cambridge Credit Counseling.

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