In 2017, revolving credit card debt in the U.S. hit an all-time high of $1.021 trillion. Much of the damage is done at Christmas, and shoppers who blow the budget incur $1,000 of debt on average. The big spenders rack up as much as $5,000. Paying off Christmas debt as soon as possible is just as important as shedding those extra holiday pounds. Taking the time to learn some practical tips can make repayment of Christmas spending less painful.
Face the Post-Christmas Music
Most people stick to a budget for regular gift-giving. It’s the last-minute gifts, home decorations, wrapping supplies, party clothes, and food and drink that make January bills so shocking.
First, see if you can reduce the amount you owe. Check the current prices of everything you bought. Items are likely to go on sale in the New Year, and you may be able to get refunds for the difference if your card has a price protection feature.
Next, take a realistic look at the big picture. Make a budget if you haven’t already or revise your budget to include the new debt.
The worst thing you can do is shrug your shoulders and make minimum payments. As of December 2018, the average credit card interest rate was 17.15 percent. That’s the highest in a decade. If you’re in debt for $1,000, it will take you until 2023 to pay it off if you’re only doing minimum payments. You’ll pay almost $500 in interest. Needless to say, late payments incur outrageous fees and wreck your credit score.
Break down that $1,000 into monthly payments and consider them nonnegotiable expenses along with your mortgage, rent, car loan, utilities or student debt. If you shoot for paying it off in six months, you’ll have to come up with an extra $170 or so per month.
That sounds intimidating, but it’s not unreachable if you plan well. It’s important to avoid impulse buys when trying to get out of debt. Limit entertainment and eating out, downgrade your cable service or try to stretch the time between haircuts and pedicures. Perhaps take a household inventory for items that you could sell on Craigslist. Even postponing vacations until the debt is paid will help your financial future.
Continued after infographic:
Consider Transferring Your Debt to Another Card
If your card has a high interest rate, shop around to see if you can do better. You might even come across a card with zero interest for a specified introductory period. That could save you hundreds of dollars, but there are some pitfalls to avoid. Almost all cards charge a balance transfer fee that’s typically 3 percent of the amount transferred. There are usually fees for annual membership, cash-advance transactions and expedited payments made at the last minute. There’s could also be a finance charge for every month that you carry a balance. If you do the math, the transfer might not be worth it if fees on the new card are high.
Another thing to check is the interest rate following the introductory period. If it’s higher than the rate you currently pay, be absolutely sure that you can pay off the debt in the set amount of time. You may have 18 months or more interest-free, but it will go fast if you’re not aggressively paying down the debt.
Resist the Temptation to Spend Your Tax Refund
If the IRS owes you, apply the full amount to your Christmas debt. The start date for tax filing is usually in late January and you should complete your return as soon as possible. If you file electronically, you could have your refund as soon as February. Getting a large refund isn’t necessarily a good thing. Think about decreasing your withholding so that you’ll have more to work with each month and that may help your budgeting in the long-term.
Take Advantage of Debt Consolidation
Finally, consider turning over your finances to professional credit counselors. Debt consolidation is the process of rolling several high-interest debts into one debt with lower interest. It will take you far less time to pay off, and it could save you a fortune. Best of all, your credit score won’t be affected.
Debt consolidation companies mediate between clients and creditors. Creditors who participate are often willing to reduce interest rates, negotiate a settlement or waive over-limit and late-payment fees. A representative will be happy to meet with you to go over your finances and help you create a realistic budget. Our credit counselors will do some calculations and propose a monthly payment amount that you can live with.
An additional advantage to debt consolidation is the convenience. You won’t have to juggle several accounts with different interest rates. You needn’t worry about forgetting payment due dates and racking up late fees. Creditors won’t hassle you.
Christian Debt Counselors is known for complete transparency, affordable fees, viable solutions and outstanding customer service. Call today to speak to one of our friendly experts. With careful planning, paying off Christmas debt can be fast, convenient and painless.