Paying off Christmas Debt

 

Tis the season to start paying….fa la la la la, la la la la!

According to CreditDonkey.com, 37% of Americans (in 2013) used credit cards to pay for Christmas gifts.  (I had a little trouble finding figures for 2014, and I’m sure 2015 isn’t out yet.  But I can imagine it wasn’t much lower in 2015.)

A lot of folks do not save for their holiday spending.  They put it on credit.  Or, if they do save, they put on credit whatever they spend over and above what they had saved.  And come January, those bills start rolling in.

The average shopper spends $882 on Christmas gifts.  (AmericanResearchGroup.com).  I can assure you, bigger families spend more.  And this is just on gifts.  There are hidden costs of Christmas as well, such as travel, food, decorations, clothing, beauty costs (nail and hair salons), electrical costs (someone has to pay for all those lights!), heating costs, as it is starting to get colder, and charitable giving costs.  November and December are very expensive months for most Americans.  And a lot of time, that goes on the credit card.

So what do you do if you have credit card bills coming in now?

Pay them, pay them, pay them!  Hopefully you didn’t have a balance before.  Unfortunately, seven percent of consumers are still paying off holiday debt from 2014.  Now they add 2015 to that, and their credit card balances just keep growing.  We don’t want to nurture and protect these babies – we want to cut them off!

And here’s how:

  1.  Pay more than the minimum balance.  If you can’t pay each credit card balance off in full, pay more than the minimum balance on each.  If you pay just the minimum, you will be paying those credit cards for years to come.  The interest will kill you.  Say you spent the average $882 for Christmas and you charged it.  If you paid only the minimum, for a whole year, never actually paying that balance off, your gifts will cost you an extra $127 (in interest) by December 2016.  (check out wisebread.com)  How many gifts would that extra $127 bought for your friends or family?  Maybe you could have treated yourself to a relaxing spa with that money.  Instead, you handed it over to the credit card company.
  2. Use the snowball effect.  If you can afford to, put a lot more money towards one credit card than the rest.  Say you have three cards with a balance on them.  One has a balance of three hundred, (minimum payment of $10) one of five hundred, (minimum payment of $20) and one of $1,000 (minimum payment of $80).  Pay more than the minimums on all of them, if possible, but on the $300 one, pay a lot more than the minimum.  Put everything extra that you can afford to on that $300 one.  Say the minimum payment is ten bucks. Put $80 on it, (or more!) if you can.  You will pay it off quickly.  Then, take that $80 and add it to the $20 you are paying on the $500 credit card, giving you a total payment of $100.  When that card is paid off, take that $100 and add it to the $80 you are paying on the $1,000 card, giving you a total of $180 every month.  Your payment snowballs as it pays each card off.  You don’t fork over any more money each month.  You simply take what you were paying on one card and add it to another, paying off your debt faster, building momentum with each payment.  Very much like a snowball.  🙂
  3. Put any “windfalls” towards the debt.  Did you receive any unexpected money?  Someone give you a gift?  Or maybe you received a large refund of some type.  Maybe something finally sold that you had on the market for a while.  Or, maybe you won the lottery.  🙂  Don’t blow all the money, telling yourself that you “deserve” a break, something fun for once.  No you don’t!  You deserve to live debt free!!  Take that money and put it on your credit cards.
  4. Do not add to the debt.  If you have a balance, and you cannot pay your whole balance off every month, then stop using your credit cards.  If you need your credit card for every day purchases, such as groceries, than somewhere within your budget, you are living outside of your means.  You have a serious issue that needs addressing.  If you are using your credit card for shopping sprees, stop!!  You don’t need those items. Wait until you can afford to pay cash for them.  You will never pay off your credit card if you keep adding to it.
  5. Contact the credit company to negotiate a lower interest rate.  If you still have last year’s Christmas on your card, and now you have added this year’s, then it’s time to take some serious action.  You need to pay that baby off.  Sometimes you can contact the credit card company and negotiate a lower interest rate, allowing more of your payment to go to the actual balance and less of your hard earned cash going to the credit card company itself.  Be careful, however, if they offer you a lower pay off amount.  Taking that lower payoff amount will get you out of debt sooner, but it also hurts your credit score.

(Photo from blog.gulpfish.com)

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