6 ways NOT to pay off your holiday credit card debt
By Dawn Papandrea
Taking money out of a tax-advantaged retirement plan will create a taxable event, plus loss of principle, plus lost opportunity of growth because those dollars taken out will never be there again to grow.
Financial adviser and ING retirement coach
out a payday loan
Payday loans are essentially very high-interest loans that provide an advance on your paycheck. "After you pay the fees and interest rate, you'll pay more than you would have if you just continued to pay the card off," says Long.
move: Make adjustments to your paycheck
There are ways to alter how much income tax you pay on a short-term basis. "You can increase your take-home pay by increasing your allowances temporarily -- as long as you usually get a tax refund," says Paula Langguth Ryan, author of "Bounce Back from Bankruptcy." "This will give you more disposable income to put toward paying off those holiday bills quickly." In a similar vein, if you expect a tax refund, you could file your return early so you can get the money to pay off bills faster.
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. "It will be hard to get out of debt for the long term that way," he says.
Focus on the highest interest rate card first
"Prioritize based on interest rate," says Gahler. "If you've got multiple lines of credit, focus on the highest interest rate first." The idea is to pay as much as you can afford on that account, while maintaining on-time minimum payments on the others. The exception: "If you have a small balance that is easy to just pay off, sometimes even if the rate is lower, it's a nice little victory to say, 'I've got that card paid off,'" Gahler says.
5. Transferring balances
Using balance transfers can be an efficient way to pay off a debt using a lower or zero interest rate card. The danger lies in the limited grace period. People often end up using the new card for additional spending without paying off the original balance before the introductory period expires. "Not only do they transfer the old balance, but they accrue even more," says Long. And, adds Gahler, with every new account you open, your credit score will take a temporary hit.
transfers sparingly, and crunch the numbers first
"Calculate exactly what it would cost you each month to pay off the zero interest debt before the zero interest period is up," says author Ryan. "Then pay that amount each month so you get the use of the credit for free and get the debt paid off in full." Plus, most balance transfer cards charge a 2 percent to 3 percent fee, so if you're transferring a hefty balance, you'll be adding more to your debt load.
6. Borrowing from family
Relatives are preferable to some other lenders, but there are still caveats. Even if a family member offers you a loan without interest, it can make for awkward encounters if you don't pay it back in a timely manner.
Save for the holidays all year long
"The holidays are going to come around again, so the best way to plan ahead in your budget is to set aside some money each month to be able to pay for holiday shopping," says Gahler. That way, by the time next December and January roll around, you have funds to pay for your purchases.
Ultimately, there isn't a magic wand for getting out of debt, says Long. It's really a matter of buckling down. "Stop using credit, pick a fixed amount you can afford, and pay that amount or more every month until the debt is gone."See related: Don't use 401(k) to pay off credit card debt, Using personal loans to pay off credit card debt, Is it possible to pay off debt TOO quickly?