Three Steps to Reduce Credit Card Debt Before the Holidays

Miss Money Bee by April Lewis-Parks

The winter holidays are a special time of the year, but for those on a tight budget this season can be stressful. Between back-to-school expenses and the high cost of the winter holidays, consumers have the two most expensive shopping seasons in the year. If you don’t control your spending, you can end the year with a mountain of credit card debt and no plan of how to pay it back.

Before the holidays arrive, consider these steps to reduce credit card debt:

Get organized: Start by writing down every debt you have, the current balance, required monthly payment, and APR (annual interest). For fixed debts like your mortgage and auto payments the amount you owe each month will not change regardless of how much debt you pay off. However, on your credit cards and other unsecured debts, paying down your balances will mean you have more cash flow available in the coming months.

Pay off credit card debt strategically: To reduce credit card debt quickly, you need to pay off debt strategically. To do this, you pay all of your obligations as scheduled, but direct all of your available cash flow to eliminating one debt at a time. To save money, you should start with the debt that has the highest interest rate. Eliminating high interest rate debt saves you money because these debts grow faster with interest added. If your highest interest rate debts are also your largest debts, paying them off first may not be the most efficient system. In this case, eliminating the debts with the lowest balances will help you gain the additional cash flow and momentum you need to tackle your biggest debts. Each debt you pay off frees up money to use for other debts. Once you have your debts at a manageable level, the cash flow can then be used to cover winter holiday expenses.

Seek help: In some cases, you simply may not be able to reduce your debts fast enough before the shopping season starts. If this is the case, you can still get your finances on track, but you will need help. Contact a nonprofit credit counseling agency to speak with a certified credit counselor about your situation. They can offer debt relief options that allow you to consolidate your debts into one low monthly payment. Some consumers reduce their debt payments by as much as 50 percent.