Christmas is over, but there's still one package on its way. Unfortunately, this one comes in the mail about mid-January, and when you open it, the balance due may be an unpleasant surprise.
December 2002 credit card bills may start January 2003 with a chill for consumers. Excessive spending during the holidays leave many wondering how to pay off their debts effectively.
Marietta financial and investment counselor David Paige of Paige and Associates at 532 Fourth St., said everyone's situation varies, but the key to eliminating credit card debt is to devise a plan to pay it off slowly but surely.
"I have a lot of people ask me 'should I pay this credit card off right away,'" Paige said. "It all depends on the interest rate."
Most of the time, Paige said people should not subtract money from their investments to pay off debts. In the long run, the investments will make more money in interest than a short-term debt subtracts in interest.
It is, however, important for people to keep up with the minimum payments on their credit cards.
"If you miss just one payment, the interest rate can jump from 10 to 24.5 percent," Paige said. "At that rate, your debt could double in about three years."
The high interest rate penalty is how many credit card companies make their money, Paige said. He suggested that people be sure to send credit card minimum payments before they leave for any vacation or periods away from home.
If people do find themselves stuck with high debt at a high interest rate, that may be the time to pay off the debt as quickly as possible, Paige said. One popular option is to pay off the high interest rate credit card with another, lower interest rate credit card. This can be dangerous, but if planned carefully, it can be effective, Paige said.
"What you don't want to do is get stuck paying off three or four credit card bills, because if you miss one minimum payment, you're sunk."
Paige's advice is to get the debt on one card with a good rate and then cancel and cut up the cards with high rates. Next, get out a calculator, pen and paper and devise a realistic 12-month plan to save money and pay the debt off, bit by bit. The key is to stick to the plan every month, Paige said. Trimming spending and paying the debt off in increments throughout the year should also build better budgeting skills and spending habits.
Making credit card payments even before the bill arrives is another way to reduce debt, according to a recent PNC Bank article about credit card bills. If people make a reasonable payment as soon as they get their paycheck, then it is less likely for the money to be wasted. Figure out what a reasonable amount would be, because paying too much right away, may just lead to more spending with a credit card.
Another PNC Bank tip is to file your income tax early if you expect a refund. The sooner you send in your tax forms, the sooner you will receive a refund check to help pay off the debt.
As for Christmas 2003, consumers should set up a plan to avoid repeating the debt troubles, the PNC Bank article said. Consumers can do this by either buying the gifts throughout the year (instead of all at once in December) or setting aside cash specifically for the end-of-the-year Christmas shopping.