MILWAUKEE -- If you got carried away with your holiday shopping, you're not alone. But don't beat yourself up about it. Local financial advisor Brad Allen from Drake & Associates joins Real Milwaukee with five tips to help you get back on track.
Last year more than half of holiday shoppers found themselves with some credit card debt. Unfortunately, 35% of those who have debt are still trying to pay it off! Credit card debt is the first thing we want to tackle before retirement. Who wants to spend the hard-earned money they've saved on high-interest payments and fees?
THE FIRST STEP IN TACKLING DEBT:
Assess the Damage
You can't undo the damage, but you can take a proactive approach by creating a budget and evaluate how much you're spending each month. When making a budget be sure to include mortgage and utility payments, cell phone bills, groceries and entertainment. Ideally, there will be leftover income in your budget.
Use the extra cash to help make more than the minimum payment on your holiday debt.
STRATEGIES FOR PAYING OFF CREDIT CARDS
It's going to be difficult to get out of debt if you're still using credit cards. It might not be a bad idea to take your credit cards out of your wallet for a few months while you get your finances in order.
Be disciplined about how much you spend when you go out. A good way to stick to your plan is to only bring cash. Remember, small purchases here and there can really add up - and that's money you could be putting toward your debt or your savings.
Decide on a Payment Strategy It's important to understand how each of your credit cards works. There are minimum payments, due dates, and interest rates to keep track of, and each impacts how long it will take you to pay them off. Many credit cards accrue compound interest daily, so every day you don't pay them off is costing you money. Once you take inventory of your credit cards, decide which method is best to pay off debt.
The Avalanche Method is all about tackling the debt with the highest interest rate first. The Snowball Method focuses n paying off the credit card with the smallest balance first. With either method, concentrate on paying off one debt at a time, while still making minimum payments on your other debts.
If you are carrying balances on multiple credit cards, consider a balance transfer. This allows you to consolidate all of your cards in one place. There could be a fee charged then you do the transfer, and most cards limit the size of the transfer. The process could take up to two weeks, in the meantime, you still need to make your regular payments. While this option isn't for everyone, it might be worth looking into.
TO AVOID THIS NEXT YEAR:
Start Preparing Now
Focus on saving $10 or $20 a week in a special account for holiday expenses.
When shopping season rolls back around, you could have $500 to $1,000 saved!