For many of us, the consequences of holiday spending have been arriving in the mailbox.
Whether those consequences are bank statements or credit card statements, all that spending eventually comes due. The National Retail Federation reports that holiday sales surpassed $626 billion — that’s with a “b” — this year. And CreditCards.com reports that U.S. adults with credit cards currently carry an average credit card debt of $5,540.
Using credit cards, especially during the holidays, isn’t always a bad choice. Some of us may have opened a new account and received substantial savings on a large purchase; others may have been eligible for special coupons, discounts, and services exclusive to cardholders.
These kinds of decisions can indeed be smart. After all, who doesn’t want to save money during a time of year when money can be tight? It’s important to make wise choices on how to pay down any credit card debt you may have.
First things first: pay your bills on time. Late or missing payments can quickly wreak havoc on your credit and end up costing substantial amounts in late fees and increased interest. Even if you’re only paying the minimum amount, make sure you’re making payments on time.
▪ Be aware of your interest rates. That great rate you were offered when you opened up a store card in December may no longer be active. Make a list of all of your cards and what their balances and interest rates are. Using that information, you can gauge exactly how much you owe and what it’s going to cost to pay back.
▪ Consolidate your credit card debt. This can help in several ways: one payment is logistically easier to coordinate, and harder to forget, than several payments throughout the month; it’s typically better for your credit to have one high-balance card than to have several cards that are nearly maxed out.
▪ Shop around for the best consolidation options. As not-for-profit institutions, credit unions are often able to offer lower rates for debt consolidation. Look for the lowest possible interest rate with no surprising fees or expenses. Paying down debt at a lower interest rate saves you money, time, and stress.
▪ Don’t add to your debt. Keep your credit cards at home and make a promise to yourself and your budget to not make the problem any worse. Similarly, consider starting a holiday fund; saving a little bit each month now can help you avoid holiday debt next December. Some financial institutions even offer such accounts to help facilitate your holiday financial planning.
And last but not least, keep an eye on your credit report. Many companies offer a free credit report that can help prevent a technical error from causing problems down the road. Entering the 2016 holiday season debt free and with good credit just might be the best gift you can give yourself this year.
Tim Toy is Vice President, Branches-Idaho at Mountain America Credit Union.