The holiday season ended months ago, but it is far from a distant memory for millions of credit card holders, who are still paying for it.
American consumers spent a record $692 billion dollars during the 2017 holiday season, but less than half of them say they paid off the balance on their credit cards a month after the fact. About 25% of consumers say it will take six months or more to pay off their holiday spending. For most people, that means more than $1,000 of debt added to their budgets.
“When the egg nog and mistletoe have worn off,” says Gary Garland, an accredited estate planner with New York-based Integrated Wealth Solutions, “the debts you incur will last far longer than the fragrances of the holiday.”
Long-time syndicated radio financial adviser Bruce Williams, still ranked among the all-time most influential talkers, was a one-man debt-counseling service in his day. As such, he’s reluctant to dispense blanket advice. It’s all about circumstances, he says.
“You have to think about this on an individual basis,” Williams says. “How much debt you have? How much income? How much in reserve?”
That acknowledged, there are general rules of the road.
“There are things you can’t finesse,” he says. “You gotta eat. You gotta pay your rent, or your mortgage. Then there are things that can be finessed.”
Aha. Finesse-able things, and how possibly to finesse them, are what we’ll discuss below.
Find, or negotiate, a lower interest rate
Credit card interest rates can be notoriously high, and higher still if you’ve had a late payment. Sometimes, Williams says, creditors are willing to cut you a break … if you simply ask.
Your card company wants to keep your business, after all, and now is when competitors unleash their most attractive balance-transfer campaigns.
If transferring a balance from a high-interest rate card sounds appealing, shop around and evaluate these things before making a decision:
- Is there a transfer fee?
- How long does the introductory interest rate last?
- How far up will it go?.
For example, suppose you commit to being out from under your average holiday debt of $1,000 in five months. We ran the numbers using one of the credit-card interest rate calculators that are ubiquitous on the web and the math is worth studying.
If you pay off the $1,000 in five months at 17.5%, you’ll send $209 a month to your creditors. At 24%, it’s a shade above $212. With one of those zero-percent cards, it’s just $200, as long as it’s paid in full in five months.
Wait. Why is a commitment to a deadline important?
“Having a finish line makes the race much easier to run,” says James Duren, who dispenses personal finance advice for HighYa.com. “Once you have that deadline set, look at what you’ve committed to your debt and ask yourself if you can realistically hit your deadline.”
Get a game plan to pay off multiple cards/debts
If, after all that, you’re still stuck with high-interest cards, list them in order of rates, highest to lowest. A reasonable approach is to attack the highest-interest cards first (making sure you pay the minimum on the other cards) and work your way down. An alternative view is to pay off lower balances first, to give yourself a sense of accomplishment and momentum.
We’re less cheerfully optimistic about the latter approach. After all, because interest does not rest, every extra dime should be assigned to the task of eliminating the highest-interest card.
Send small payments throughout each month
Noting the sleeping habits of interest – it never sleeps, adding incrementally every day to every extra dollar on your debt – should afffect your repayment decisions. Rather than wait until just before the due date to send your installment, thereby allowing interest to nibble away like termites at your future earnings, send payments when you have the money. Every $25 you pay two weeks early is 14 days of interest charges saved. Over time, that can add up.
Want to play a game? Commit to a diet of denial until your holiday debt is paid off. Just say no to things like:
- Dining out
- Shopping for this season’s clothing
- Trips to the multiplex theater
- Visits to a nail salon
- Picking up the tab for a night out with the boys/girls
- Visits to a theme park
- An evening at the high-rise/high-priced golf driving range
Every time you’re tempted, or a pal invites you along, politely decline, then send the amount you would have spent to one of your lenders. That will be at least $100-$200 a month going to eliminate debt, while not really compromising your lifestyle.
If you used eBates (a cash-back website) or a rebate card – or, better still, some combination – for your holiday purchases, commit to sending those bonus checks to your creditors. The same goes for some or all of your income tax refund, or the last of your Flexible Spending Account reimbursements from 2017.
Yes, this sounds painful. The best way to avoid this pain in the future lurks below.
Trim your budget (first, get a budget)
The first key to whittling your holiday-induced debt is knowing where you stand in the first place.
“Make a budget, or review the budget you already have,” Duren says. “How much of a difference is there between what you spend each month and what you bring home? If there’s any breathing room, one way to pay down your holiday debt is to commit some or all of that surplus to your outstanding balance.”
So: Get a budget, or get a better handle on the budget you have. Begin with a budgeting app. There are lots of good ones. Check ’em out; see which one most appeals to your sensibilities.
Mint, from Intuit, draws raves as a great all-around budget app. So does Wally, which is great at tracking your spending. For people in debt, however – and who isn’t? – You Need a Budget (YNAB to its fans) rules with its clear-eyed, straightforward philosophy: Every dollar has an assigned task, and we’re going to make them work hard.
Mvelopes works on a principle similar to YNAB, taking the venerable “envelope budgeting” scheme digital. In this, each envelope has a job; when, for instance, the out-to-eat envelope is empty, that’s it until the next regular infusion. There’s also CountAbout, a browser-based budget system, and Money Dance, which is essentially Quicken for Mac enthusiasts.
Once you have a good handle on what’s coming in and what’s going out, you can see better the opportunities for paring back nonessential spending. Make coffee at home and save that $5 you spend daily at Starbucks or Dunkin’ Donuts, for instance. Direct that money instead at your holiday debt.
While you’re at it, says Garland, “Get your credit utilization as low as possible – sites like creditkarma.com give free info about your credit, and show your card utilization.”
It might also be wise to examine your transportation choices. If you could live with a less-expensive vehicle, you could save substantially on monthly payments and insurance costs. Also shop your internet provider and your streaming or cable services. Competition is fierce; sometimes you can lower your payment just by asking for a break from your current provider, even without changing your package.
Earn extra cash
Unleashing your skills, or simply your availability, in the burgeoning gig economy might be the ticket to getting out from under. Uber and Lyft, the app-based “ride sharing” side hustles, are always hiring. Got an extra bedroom in a desirable location? Maybe Airbnb is a source of income for you.
Need help finding flexible job opportunities? Visit Upwork or LinkedIn ProFinder. Got specialized skills? Check out Guru, FlexJobs or other industry-specific sites, such as toptal (top talent – get it?) to browse freelance jobs. For making cash doing chores and running errands, try TaskRabbit, Instacart and Postmates.
Don’t reject traditional part-time jobs at the nearby retail center on the weekends and during the evening.
Get some of your debt dismissed
This is not as far-fetched as it sounds. “Many companies are getting realistic,” says Williams, who has operated a bank or two in his time. “They’d rather take 25% than nothing.”
You probably don’t want to go down that road alone, however. It is an extreme decision, fraught with lasting perils. For instance, your credit report will get dinged for seven years. Adding insult to injury, the IRS considers waived debt to be income; you’ll have to declare it on your taxes.
And if you’re attempting to score waivers as part of a debt settlement plan, the process can drag on for months. Consolidating debt is a more credit-score-friendly approach.
Still, if you think you’re a candidate for radical relief, you’re more than ready to consult with a nonprofit debt counseling service. After all, negotiating interest rates, paring away debt and getting its clients on a livable budget are topics they tackle every day.
“It can be really tough to tend to your credit card debt in the months following the holidays, especially if you have a family,” reporter Duren says. “The holidays are exhausting, school starts again and you can feel overwhelmed easily.
“That’s where a credit counseling organization can be a huge help. You can meet with someone who will bear some of the mental burden, encourage you and help you formulate a plan to succeed.”
And with that, your holiday good humor will return before you know it.
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Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].