6 ways NOT to pay off holiday credit card debt
By Dawn Papandrea
You can increase your take-home pay by increasing your allowances temporarily -- as long as you usually get a tax refund. This will give you more disposable income to put toward paying off those holiday bills quickly.
Paula Langguth Ryan
Author, "Bounce Back from Bankruptcy"
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. "These 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.
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 help accelerate your payoff plan.
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
"You want to have a laser focus on the highest interest rate first. Once that is paid off, go to the next highest rate," says Gahler. The idea 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. 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 promotional 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
You may receive a low promotional interest rate on a new balance transfer card, but don't forget that you'll also pay a fee, which is usually 3 percent to 5 percent of the amount you transfer. "This fee is often more than the amount of interest you'll save by transferring," says Long, 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. 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
"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 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, which is why it's important to treat your financial goals more seriously than a fleeting resolution, says Ryan. "Focus on a plan that has longer-term benefits for you, which is getting out of debt, and not relying on credit anymore."