Dig Out of Debt This Holiday


Budgeting is essential when you're in college, but the holidays can really put a dent in your funds.  First come the holiday parties with fancy foods and "secret Santa" games. Then there are the big-ticket gifts under the tree with stocking stuffers to boot. And just when you think the holiday spending spree is over, it's time to ring in the New Year with a stylish night on the town. Come January, your credit cards have had all the abuse they can take.

Racking up a small mountain of debt during the holiday season may be an annual tradition for many consumers, but it's problematic nonetheless. Overspending can cost you dearly in the form of high interest charges, and it can derail important financial goals like saving for retirement.

The damage may be done for this year, but here are several ideas to help you ditch your debt quickly and avoid the credit card crunch next December.

Tighten the reinsIf you were a little too generous for your budget last month, it's time for a reality check. Start tracking your expenses - line by line - to determine exactly where your money's going each month. You may be surprised by how much you're really spending on lunches or spontaneous trips to the mall, and chances are you'll find some places to cut back. The more you save, the more money you can put toward paying off those credit card bills.

Set realistic goalsThe most common New Year's resolution is simply to "lose weight," but most people never make progress because they don't aim for a specific target. Dropping debt is similar to shedding pounds. You're more likely to get results if you vow to reduce your debt load by a certain dollar amount within a specific time frame. For example, you might shoot to pay off $500 by the end of February. Even if you still have $1,000 left to go, hitting that first goal will give you the confidence you need to stay on track.

Plan strategicallyIf you have more than one credit card, focus your biggest payments on the card with the highest interest rate. This will minimize the amount of money you're wasting on interest charges. Typically, credit cards from department stores have the highest rates.

A different strategy would be to pay off the card with the smallest balance first, which would allow you to see progress quickly and give you one fewer bill to pay each month. Either way, the important point is to make a plan and stick to it.

Card-hop with careAs another way to minimize interest charges, you might look into transferring your balance to a new card with a lower annual percentage rate. It can make sense under the right circumstances, but be warned - a credit card offer that sounds too good to be true probably is. Many cards offer extremely low rates for an introductory period, but make it up through extraneous fees and a sky-high rate after several months. Read the fine print carefully to make sure you're getting a good deal.

Another danger of card-hopping too frequently is damaging your credit score. Every move you make is recorded on your credit report, and lenders tend to see frequent balance transfers as a sign of high risk. Too much skipping around could hurt your ability to qualify for loans and low interest rates.

Start saving for next timeOnce you've successfully banished that monstrous debt, make sure it stays away for good. As soon as possible, establish a "holiday fund" and begin stashing away a small amount from each paycheck. Many banks and credit unions offer interest-bearing "Christmas Club" accounts specifically for this purpose. But stuffing $10 a week into a shoebox can work just as well if you have the discipline not to touch it.

When gift-buying season rolls around, start with a firm budget and a detailed shopping list. If Santa can stick to his list, so can you! Start early to give yourself plenty of time for comparison shopping. You may be able to find better deals online if you have a few weeks to spare for shipping. Don't exceed your budget and if it's not on your list, don't buy itA?even if it's on sale. Ideally, you should be able to make most of your purchases with the cash you saved throughout the year.

And spreading holiday cheer will be all the more enjoyable when you know you won't be paying for it later.

Joseph "J.J." Montanaro is a CERTIFIED FINANCIAL PLANNERTM practitioner with USAA Financial Planning Services, one of the USAA family of companies. Montanaro served in the U.S. Army for six years on active duty. He is currently a Lieutenant Colonel in the U.S. Army Reserve.

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP and CERTIFIED FINANCIAL PLANNER in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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