10 Tips for Digging Out from Under Holiday Debt

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So, the giving spirit got the best of you this past holiday season, leaving you wondering how you can afford to pay down those bloated credit card balances.

Debt from overzealous holiday spending can quickly snowball because of interest charges, leaving people with mounting balances to show for their generosity. And those balances are only going to get larger without taking quick action. Here are 10 initial steps to consider taking:

1. Transfer balances to a zero-interest or extremely low-interest credit card. Take advantage of attractive interest rate offers that credit card providers often dangle to lure consumers. Utilizing an offer along the lines of 0% interest for 15 months, for example, can save hundreds, even thousands, of dollars in interest charges and help you pay down your credit card debt faster. Be sure to read through the terms (such as the window for completing transfers and related fees associated with the new card) before applying for the transfer. To find balance-transfer offers with the most favorable terms, check out websites such as bankrate.com or creditkarma.com.

2. Make a debt-reduction plan. As overwhelming as digging out may seem, having an actual plan can make the process feel much more manageable. A Certified Financial Planner™ can help develop a plan that’s achievable and tailored to your specific circumstances. To find a CFP® in your area, visit the Financial Planning Association’s national database at www.PlannerSearch.org.

You can also get free debt-reduction counseling from an organization such as www.credit.org, which also provides debt-reduction plans for a small fee.

Or you can use an app such as PowerPay (free via www.powerpay.org) to make a plan yourself. Developed by the University of Utah, it offers tools to develop your own self-directed debt-elimination plan. Another app, www.ReadyforZero.com (also free for users), allows you to link various accounts (for loans, credit cards, mortgages), then create a personalized payoff plan that includes reminders and tools to track your progress. Debt repayment calculators and other online tools also are available online at sites such as bankrate.com and creditkarma.com.

3. Set your payment priorities. If you’re carrying balances on multiple cards, focus on paying down those with the highest interest rates. And make a point of at least making the minimum monthly payments on all your accounts to avoid extra fees.

4. Tap into an emergency fund or checking account to pay off balances. The emergency fund that financial planners recommend people maintain may be used for unforeseen circumstances such as these, says Rose Swanger, a Certified Financial Planner™ with Advice Finance in Knoxville, Tenn. Or, if you have some extra money in your checking account after paying off other expenses, apply it toward credit card debt.

5. Tap the equity in your home. Talk to a Certified Financial Planner™ or debt counselor about whether it’s in your best interest to take out a home equity line of credit to consolidate and pay down your debt. This can make sense particularly if the interest rate on the HELOC is lower than that applied to your credit card balance(s).

6. Identify areas of discretionary spending that you can apply to pay down debt. Sacrificing that daily macchiato, occasional mall shopping excursion or other source of discretionary spending in order to pay off credit card balances may hurt, but getting out of debt quicker makes it worthwhile.

7. Sell stuff you don’t need or want. In the dark corners of a garage, basement, attic, closets and/or storage unit may reside items that you could sell (via a yard/garage sale or a site such as craigslist.org) to raise cash to pay down debt.

8. Curb your use of plastic. Don’t exacerbate the problem by continuing to use a credit card on which you carry a balance.

9. Apply tax refunds, holiday bonuses, stock dividends and the like to pay off debt. Rather than running out to spend such a windfall, put it to constructive use by applying it directly to a credit card balance.

10. Try negotiating new payment terms. Some credit card providers may be open to discussing more favorable payment terms with you, according to Swanger, especially if your credit rating and payment history are strong.