How to Shed Holiday Debt in 2012

Financial Problems.

The gifts have been unwrapped, the trees are long gone and the decorations are packed away, but there is still one remaining hint of the holidays: credit card bills.

By now, your first post-holiday credit card statements have arrived, and millions of families are still feeling the pain of their December spending. If you spent too much this past holiday season, it’s time to start planning how to deal with the debt and fix your finances.

The holidays are filled numerous financial pitfalls that can put your budget in a bind. Luckily, the solution to finding relief from the debt may be easier than you think. Your first step should be determining exactly how much you owe on each card; the amount of credit card debt you have is a big factor in deciding which debt solution to use. Now might also be a good time to check your credit score since some debt relief options are dependent on having a good credit rating.

The Payback

Now this may seem obvious, but it must be said: It’s time to stop using your credit cards. Start paying with cash, and use any surplus money to pay down debt. If you can’t afford to pay off all your credit card bills, pay down the bills with the highest rates while continuing to make minimum payments on the other cards. If you don’t pay off the highest interest rate cards quickly, it might come to the point when you are only paying down the interest and not the actual balance. 

Applied for New Credit During?

Many consumers fall for the fatal attraction of “super deals” by signing up and using a store’s credit card to make purchases. The retailer promises lower interest rates (for a limited period), a better price on the product and sometimes a few months respite before having to start paying the bill. Sounds great, but if you don’t pay it off during the limited-time offer, the interest rates usually skyrocket, and you’re stuck paying much more than you planned.

Also, every time you apply for credit it’s listed on your credit report, which is not good. On top of that, you now have extra credit cards to swipe (don’t do it, put them away), and if you want to cancel them, there could be a fee.

Bottom line: don’t apply for more credit during the holidays, it’s just adds to the burden of paying off debt. One or two major credit cards will suffice. If you did open new credit lines, pay those cards off before the limited lower interest rate period ends, and then cancel them six to 12 months down the road.

The Transfer Balance Option

Do some research on transferring your balance to a card with a lower rate – but be careful, the rates on these cards are often introductory and will rise substantially after a period of usually six to 12 months. If you think you can pay off your balance over that introductory period then putting all your debt on this card might make financial sense. Remember, read through all the details, and there will most likely be a fee to transfer your balance.

Debts that are Overwhelming

If you have multiple large debts, or have a bad credit rating, you may want to reach out to a credit counseling agency to enroll in a debt management program. As with other forms of debt consolidation, an agency can combine multiple unsecured debts into one, low monthly payment. The interest rate is usually lower than anything you could qualify for on your own with bad credit. There can be additional benefits, as well, like removing penalties and fees for late or missed payments as well as stopping any additional penalty listings on your credit report.

Make sure to find an accredited agency with an A+ rating through the Better Business Bureau, and speak with an agent before you consider any options that can hurt your credit, like debt settlement or bankruptcy.

Look Ahead for Next Holiday Season

Budgeting for the year—including holidays—will keep you out of financial trouble. The holiday rush of good will and merry times abruptly ends each year, and those that don’t budget or stay within their financial means, are left with the post-holiday blues in the new year.

Howard Dvorkin, CPA, is the founder of Consolidated Credit Counseling Services, Inc., and the author of Credit Hell: How To Dig Out of Debt. He is also personal finance expert and consumer advocate who has been helping people for more than 15 years.