Still struggling to get your credit cards paid off after the holidays? Here's your plan of attack:
The winter holidays have dissolved into nostalgic memories and we haven’t had an eggnog latte in over a month.
But at least one full credit card cycle after New Year’s, some of us are still carrying holiday credit card debt. It's no fun looking forward to spring while carrying this weight, and it puts a damper on any summer travel savings plans. So here's our plan of attack for tackling that holiday credit card debt:
1. Negotiate Your APR.
Credit card companies will budge if only you ask. Before calling, research the competition and all of your options with a resource like Billshrink, a site that quickly surveys your bill options for better rates. Call the company of your highest-interest credit card and tell the rep that you want to lower your APR by 5%. Remind the rep how long you’ve been a customer and that you’d rather not switch credit cards, but you’d like this one to move some things around in your favor.
Take notes during your conversation, including the rep’s name; if the first rep can’t help you, ask for the customer cancellation department, which often has more power to make a deal with you. Even if your rate is only lowered by 1% or 2%, every little bit helps. If they can't lower your APR, ask if there are any low or zero percent balance transfer deals, and shift balances to that card, keeping in mind the expiration date for those low rates.
2. Play The Numbers Game.
If you have multiple bad debts to pay off (like balances on a few different credit cards), start with the debt that charges the highest interest. Continue to pay the minimums on all of your debt, but focus your above-and-beyond efforts toward the debt with the highest interest rate. Once you’ve knocked that bad boy out of the running, turn your attention to the debt with the next highest rate.
Alternatively, there is the "snowball effect," another approach we also like, in which you pay off your lowest balance card first, then move on to the next highest balance, one by one. Many proponents of this system say that the positive feeling and motivation from successfully paying off your first balance sooner than later will push you to pay off other cards--and this value outweighs the minimal difference in interest payments. The snowball effect is conducive to building good habits if you struggle with staying on track; but we suggest using it only if your interest rates are in the same ballpark (i.e. don't vary more than a few percentage points), and if there is a large disparity in your balance amounts.
3. Start Selling.
Now is the time to get a jump start on your spring cleaning. Go through your closets and canvass for your home for items that have been sitting around unused for over a year. Be aggressive--you are not only decluttering your home but also bringing in needed cash to pay off debt in order to start the next season on the right foot. Sell your items on eBay, Craigslist, or hold a yard sale. Put it straight towards paying off those credit cards--don't get sidetracked by bidding on those "gently worn" Louboutins. (Here's more advice on how to maximize your earnings on eBay.)
4. Get Support.
Going debt-free can be daunting, but remember that you’re not alone. About 56% of consumers have carried an unpaid balance in the past year, and the national average unpaid credit card balance is over $3,000. If you crave the guidance and support of a community while you dig yourself out of a hole—no matter how large or small that hole may be—check out our free Get Out Of Debt Bootcamp, a 15-day intensive program to help you get organized and gain control over your debt. You can join the thousands of readers that have successfully completed the Bootcamp, read their comments, and feel a little less alone.
5. Do Not Repeat.
Don't fall into this pattern next year again. Regardless of whether or not you are still carrying holiday debt, we recommend you start planning for your next holiday season--now! Yes, you heard us. Now that you know what you spent this past holiday, tally up your holiday costs from this past winter (include everything--parties, gifts, wrapping paper, etc.). Divide by 9 (months left in the year before next December) and that is how much you should start setting aside each month, starting now, to make it through the next holiday scot-free.
Does this sound like a drag? Well, planning ahead will allow you to leisurely shop for quality items on sale throughout the year, with your budget in mind, instead of doing the November-December scramble--which means your dollar will go further for your gifts. And, while we typically don't recommend shopping more when you're already in debt, consider stocking up on some seasonal sale items--the very things on sale right now (cashmere, winter items) make ideal holiday presents (consult our handy guide).
The early bird does get the worm--and with a little hard work, just may be flying south this summer.
For more information on which debts to pay off first and how to prioritize saving and investing, check out our article on this very topic.