February 1st, 2013
Getting Tough on Holiday Credit Card Debt
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**Today’s guest post is contributed by Angie.**
While the holidays have come and gone, many of us are still feeling the financial sting that is distinct to this most wonderful time of the year. Credit card debt is usually where most consumers have borne the brunt of the holiday weight (financially, at least—I’m sure nana’s cookies haven’t helped other areas either). But it’s important to know that if you are toting some major credit card debt that you are not alone. Here are some numbers from Credit Karma’s December 2012 data that may or may not shock you:
- Average credit card debt per consumer: $5,470
- Average number of credit cards per consumer: 5
- % of consumers with credit card debt: 83%
And this is an improvement from last year’s numbers:
- Average credit card debt per consumer: $6,576
- Average number of credit cards per consumer: 6
- % of consumers with credit card debt: 86%
Even though there was a drop in credit card debt over the last year, it still does not bode well for the average consumer. USA Today recently said that it takes the average person until May to pay off their holiday debt—nearly half of the next year! So how do you alleviate this debt? Well, you start getting tough with it.
Sit Down with Your Bills—All of Them
In order to fully address a problem, you must first know the extent of it, so map out your money. Sit down with your credit card bills, student loans—everything. If you’re paying for it, you should have it in front of you. Now figure out:
- What you owe.
- Who you owe.
- What the interest rates are.
Next, prioritize your credit cards by highest to lowest interest rate, as you will want to pay off the card with the highest interest first. It’s important that you try to put as much as you can toward that card until it is paid off, paying more than the minimum.
Finally you have to make a budget and give yourself a fixed amount to work with each month. Start by making two lists, one of your necessary expenses (food, shelter, insurance) and unnecessary expenses (nearly everything else). It’s important to be brutally honest with this process. Living simply will not only diminish your debt, it’s a great habit to form in order to stay out of it in the first place.
Cutting Expenses and Generating (a Little) Extra Income
The following aren’t the only areas that you can trim, but they are the most central to everyday life, and therefore provide a good starting point.
If each person in your household has a car, you may consider selling any vehicles you can do without. In addition, utilize public transportation or carpool when you can. There are many resources available to help you find programs in your area, such as rideshare and your local public transit site.
Try to reduce or eliminate your cable bill. You could limit your premium channel packages and just go with basic cable. If you are considering getting rid of cable, but have TV shows you truly love, Hulu Plus and/or Netflix may be cost-effective options.
Consider canceling club memberships. If you’re using a gym membership less than once a week or a country club membership less than once a month, you really aren’t getting your money’s worth.
First, stop going out to eat and ordering in. This alone will offer you significant savings, as spending on prepared food drains funds like crazy. Instead, plan your meals for the week, and make a list of what you need. This will prevent you from making impulse buys while at the store. Buying certain items in bulk, like rice, cereals, and most pantry items, will let you stock up without breaking the bank. In addition, start cutting coupons for items you use regularly, and don’t be afraid to comparison shop—the store that does not offer coupons may still be cheaper than the one that accepts them. Finally, gardening is a great way to provide you with fresh produce and herbs seasonally, so if you have a green thumb, this is a great way to save.
Purge what You No Longer Need, Be Practical with What You Do
Everyone has a few things here and there that they don’t use, and just take up space. Make note of these things and hold a yard sale. You’ll make a little cash, and what you don’t sell can be donated, and then written of your taxes.
Following the tips above should give you a little more wiggle room, so just be sure you are using the extra cash to pay off your credit cards, and try to stick with your budget when you are spending money. In addition, try using cash only for your purchases. Limiting the use of your credit cards is another effective way trim your statement and control your expenditures— once you have exceeded your cash budget, there is physically no more left for you to spend. You could also try treating credit cards like debit cards, and keep track of every purchase. Just be smart, and keep track of every cent; you will have everything paid off in no time.
Tips to Prepare for Next Year
The holidays come every year, so there is no surprise. Smaller banks still have both Christmas Club and Vacation Club accounts. A weekly or monthly direct deposit makes it painless and you get a check in the mail at the end of October/beginning of November. A specified savings account will do, also. Re-think your gift giving list. Is it really necessary to give $50 gifts to everyone you know? A box of chocolates or a homemade gift definitely go a long way. Just remember that if you made it yourself, your family will have to say thank you (no matter how ugly it may be).
Angie Picardo is a staff writer for NerdWallet, a site dedicated to helping consumers find the best credit cards.
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