Resolved: To get rid of credit-card debt ASAP.
I have other New Year's resolutions, of course like riding my exercycle every day and eating less red meat and more tofu.
Like most people weighed down with holiday credit-card debt, I am making payment of my credit-card bills the first financial priority of the new year.
Think of it not as a debt payment but as an investment with stellar returns, because that's what it is.
If paying off a card debt allows you to avoid a 15 percent interest charge, it's just like making 15 percent on an investment. And these days you won't find any other investment with a guaranteed return that high.
So, if the card bills are just too high to pay off at once, set up a strict schedule for shrinking them as fast as possible. Tackle the cards with the highest interest rates first.
Anyone who thinks it will take many months to trim the card debts should consider transferring the balance to a new card that carries low interest, or perhaps no interest, during an introductory period. To track down low-rate credit cards, try the Web site of Bankrate.com, the rate-tracking company: www.bankrate.com.
Be cautious with options
Avoid making repeated transfers, though. Card issuers look askance at this, and it could hurt your ability to get a card or other type of loan in the future.
I'd also be leery of offers to consolidate debt by taking out a home equity loan. While this can look good on paper, loan fees can chew into any savings. And it takes real discipline to make the strategy work. If you end up making only the minimum payments required on the home equity loan for five or 10 years, you may pay more in interest than you would carrying the card debt a few more months, even though the home-equity rate may be half of that on the card.
Also, I think many of us develop a kind of debt comfort level. Paying off the card debt merely makes us feel free to start using the card again. It would be tragic to go back to carrying a high card debt and to be shouldering a home-equity consolidation loan at the same time.
Ideally, credit cards should be used as a convenience rather than a lending source, except, perhaps, during the holidays or when one is on vacation so long as the debt doesn't linger. Anyone who has trouble paying off card bills every month should consider it a warning sign, like finding half-empty beer cans around the house.
The cold-turkey cure is to cut up the cards and cancel them. At the very least, a card abuser should cut back the number of card accounts. Some people also try keeping their cards separate from their wallets, leaving them at home unless they are needed for a specific, planned purchase. That cuts down on impulse buys.
Credit to debit
If you simply need an alternative to carrying cash and find that too many places don't accept checks, consider switching to a debit card.
Using these, you don't build up any debt. Instead, the charge is immediately deducted from your bank, brokerage or mutual account. Debit cards carrying the logo of major card issuers such as Visa and MasterCard are accepted anyplace that takes those credit cards.
Of course, using a debit card means you have to keep records of expenses, else you risk overdrawing your account or having a critical charge declined.
But that's a good habit, anyway with credit cards as well as debit cards.
The fancy approach involves using financial software such as Quicken or Microsoft Money. These can be set up to link through the Internet with your credit- or debit-card account. That allows you to download a record of every transaction. You could thus have an up-to-date accounting of expenses and use the software to do any number of nifty analyses of your spending habits, making it easier to find places to cut back.
But you don't have to go high tech. Just wrap a sheet of paper around your credit card, carry a pen and jot down every purchase.
No comments
Commenting is turned off for this story.