5 Tips to Lower Holiday Debt

Now that the holidays are over, those of us who used our credit cards are now seeing the downside to that Santa spirit. The bills have arrived and you now realize just how much you spent. Well, don’t panic, yet! Here’s some sound advice to help you put this Christmas behind you and help you attack Christmas 2009 without relying on credit.

• Line ’em up and move ’em out No, it’s not an episode of Rawhide, but it’s a way to take a look at the big picture and start picking off your debt one-by-one. Get out your credit card statements and line them up. First, priority should be cards that are right at or over their credit limits. Since these will cost you in outrageous fees, we need to get those below the credit limit ASAP. Next priority is the higher interest cards followed by the lower interest cards. Got them lined out? Good. Next step.
• Stop the fees Okay, Like I said above, the first thing is to make sure we don’t get an over-limit fee. If you have any cards right at or over the limit, we need to take care of those first. This can be a vicious circle where you make a payment, the balance dips below the limit, but then you are attacked with interest and the over-limit fee (which seems to apply on the worst possible date) that jumps you back over your limit. You want to make enough of a payment so that you will still be under when they apply interest and fees.
• Pay more to the high-interest cards It is always a good idea to pay more than the minimum, in fact the more over the minimum, the better. But, if you have multiple cards, and most of us do, you need to get the high interest ones down first. To do that, you pay the lower interest cards at about $5 over minimum so that you can pay the higher interest cards more. I suggest at least $50 over minimum, if you can do that. If not, then as much as your finances allow. As you pay down the high interest cards, your minimum payments will lower drastically, allowing more of your payment to go to principal.
• Negotiate lower interest If you have been a good customer, paid bills on time, and stayed below your credit limit, you may be able to negotiate better terms, even in the short term. Call the card company up and remind them how good you’ve been. If you are receiving offers for 0% transfers, tell them so. They may reduce your rates to keep you there.
• When all else fails If you find yourself in quite a pickle where you are in danger of not being able to make at least the minimum payments every month on your card, consider Consumer Credit Counseling. They are almost always able to negotiate 0 interest as long as you are using their services. Of course, this almost always means closing the credit card account, but it will definitely help you stay afloat and pay off your debt.

Once you get your cards paid off, decide on which ones to close. I try to stay with 1 or 2 cards and only use them in emergency situations. Try to choose the ones that have a good balance between credit limit and interest rate. The better your credit score is, the lower the interest you can get.