Wednesday, January 6, 2010

Have You Cleared Your Holiday Debts?

Have You Cleared Your Holiday Debts?
Have you cleared your holiday debts yet? No, well, the blame game is pointless as the fact remains that you swiped your credit cards for your vacation and shopping. Now your finances in the new year sucks.

Assuming your holiday debt to be $1200, at 12% credit card interest, you have to pay about $100 per month for 13 months.

Do you really want to repay your moment of fun with so many months of hard-earned money? You’ll pay more in interest on the credit card than you will earn if your money is sitting in a bank.

Thus, the best thing is not to incur that debt and the second best option is to write a check to pay off the bill right away.

If you can't do any of the above, here are a couple of debt reduction strategies to implement:

1. Find a new credit card which offers 0% APR on balance transfers. You can save money from not letting the interest accrue while you make payments. Once you’ve got the new card, you should get rid of the old one.

2. Reduce exepnses. There shouldn’t be any unnecessary spending. That means no more dining out, parties, movies, shopping, etc., until the holiday debts have been paid.

3. Channel “extra” money toward the debt. But you say, where are you going to get extra money besides your montly salary?

Remember the rebate checks from your holiday purchases? How about a reimbursement check from last year’s Flexible Spending Account? Sales from selling extra gifts on eBay? Or money from any contests?

Put all these bits of “extra” money toward that credit card bill every now and then, and you will shorten the debt repayment period.

4. Use tax refunds for your holiday debts. You need to get organized with these tax documents and if possible, get an accountant.

Choose the direct deposit option for your refund and you’ll get your money weeks sooner. Once you receive your refund, apply it directly to credit card debt.

If you’re anticipating refunds on a regular basis, consider adjusting your tax withholdings so that your monthly paycheck is larger, and the government isn’t holding on to your money, collecting interest on it.

Put each payday increase into one of those high-interest bearing online bank accounts and earmark your savings for next year’s holiday spending.

By implementing these tactics, you’ll be amazed at how quickly you can eliminate your holiday debt and move on with your life. Just remember to plan ahead now for next holiday season, so that the debt monster doesn't rear its ugly head again.