Personal Finance Writer
Specializes in family finances
you're already dreading post-holiday credit card bills, join the
Retail Federation expects that the 2017
holiday season will see the most spending ever, estimated to
rise 3.6 to 4 percent above 2016 and reach almost $682 billion. And, of
course, a good chunk of that spending will be done on plastic.
If you are planning now to make good on a resolution to pay down your debt, make sure you do so in a way that actually improves your overall
financial status. In other words, think twice before resorting to these sketchy
debt payoff plans:
1. Don't dip into retirement savings.
There are two ways people tap retirement funds that don't serve their long-term
interests, explains Kelley Long, a financial planner and spokeswoman for
360 Degrees of Financial Literacy.
first way is through a 401(k) loan," she says. "Not only are you
sacrificing growth in your retirement funds while you pay off the loan, but if
you leave your job before the loan is paid back, you'll owe the entire balance
immediately – and you can't pay it back with a credit card."
other unwise decision is to withdraw from your individual retirement account.
The 10 percent early withdrawal penalty alone can end up costing more than any
credit card interest.
move: Take money out of savings.
Interest rates on savings accounts and short-term investments are still low, so
"borrowing" from yourself and replenishing the account over time can
help repair the damage if you realize you overspent during the holidays, says Kasey C.
Gahler, a Texas-based certified financial planner.
don't bring your savings down to zero," he warns, since you should try to
keep a healthy emergency fund intact. He recommends socking away three to six
months' worth of living expenses – or even more if you're working in a field
with high layoff potential – so you don't go deeper into debt because of
unexpected bills or loss of income.
2. Don't use a home equity line of credit.
Low interest rates can make borrowing against your house via a home equity line
of credit seem attractive – especially since the loan interest is usually tax
deductible. But using this tactic can be tricky.
paying for debt with different debt," says Gahler. "The issue is not
necessarily what the interest rate is, but that you're playing a shell
Increase your earnings.
Instead of moving your debt around, make a concerted effort to pay it off
"If you are retired or have availability in your work schedule, you can
pick up a seasonal position to make extra money for holiday spending/paying off
holiday debt," says Jake Serfas, lead financial strategist at O’Dell,
Winkfield, Roseman and Shipp in Washington, D.C. Or you can hold a
garage sale, or sell items on eBay or Craigslist.
"You want to have a laser focus on the highest interest rate card debt first. Once that is paid off, go to the next highest rate."
Don't take out a payday loan.
Payday loans are essentially very high-interest loans that provide an advance
on your paycheck, so be sure to read the fine print, says Long.
loans come with big fees, and you'll end up paying more in the long run than if
you just waited until you're paid to pay off the credit card," she adds.
Better move: Make adjustments to your
There are ways to alter how much income tax you pay on a short-term basis.
pay more throughout the year and get a refund?" asks John Hill, owner of Gateway
Retirement in Rock Hill, South Carolina. "Your
No. 1 obligation is to pay yourself, while paying as little tax as
your human resources staff if you can increase your take-home pay by
increasing your allowances, and put that extra money toward your debt (and
check with your accountant if you're not sure about it). Once the debt is
repaid, you can revert back to where you had it.
In a similar vein, if you expect a tax refund, you could
file your return early to get that money to help accelerate your payoff
Don't pay off your cards without a plan.
If you owe a balance on more than one account, choosing an amount each month
and divvying it up equally among accounts is not advisable, says Gahler. The
same goes for paying just the minimum amount due on your accounts.
will be hard to get out of debt for the long term that way," he says.
move: Focus on the highest interest rate card first.
"You want to have a laser focus on the highest interest rate card debt first.
Once that is paid off, go to the next highest rate," says Gahler.
is that you want to rid yourself of the debt that's costing you the most as
soon as possible. Just be sure to maintain on-time minimum payments on your
other accounts. Of course, if you have a small balance that's easy to pay off,
go for it, so you can enjoy the satisfaction of crossing that one account off
your list, says Gahler.
5. Don't transfer balances.
transfers can be an efficient way to pay off a debt using a lower or zero
interest rate card. Or, it could just be a temporary attempt to sweep the problem under the rug, warns
Serfas. The danger lies in the limited promotional period.
People often end up using the new card for additional spending without paying
off the original balance before the introductory period expires or start using the
card again that now has a zero balance.
"Not only do they transfer the old balance, but they accrue even
more," says Long. And don't forget: With every new account you open, your
credit score will take a temporary hit.
move: Use balance transfers sparingly, and crunch the numbers
You may receive a low promotional interest rate on a new balance transfer card,
but don't forget that you'll also usually pay a balance transfer fee, which is typically 3 to 5
percent of the amount you transfer. So use a balance transfer
calculator to see if it's worth it. If it makes financial sense to go this
route, stay disciplined with your monthly payments, and circle your "Debt
Free Date" on the calendar to stay motivated.
6. Don't borrow from family.
Seeking financial help from relatives may be preferable to turning to other lenders, but there are still caveats.
"Borrowing money from friends and family can put distance between
relationships," says Hill. "When no terms are set, there is tension
and often questions that need to be answered."
move: Start thinking about the next holiday season in
"Take a couple of minutes to go through what you spent this past holiday
season, and tally it up. Then divide that total by the remaining months of the
year, and try to build it into your budget to put that amount away each
month," says Gahler.
By next December, you'll have a nice amount set aside for cash-only holiday spending.
Ultimately, there isn't a quick fix for getting out of debt, says Hill.
"It’s much better to save all year long for holiday spending, rather than
overspending and running up debt. Doing so will allow you to be paid interest, instead of paying interest," he says. And
that will make for more rewarding, enjoyable, debt-free holidays moving
See related: Is it possible to pay off debt too quickly?, You did WHAT to pay off your debt?, When paying off debt becomes an addiction