Struggling With Holiday Credit Card Debt?
The holidays are upon us, and unfortunately, going into debt during the holidays can be a reality for many. All too often our credit cards are an ‘easy fix’ for buying something for which we really don’t have the money, such as presents or items used to host a holiday party. Although we may promise ourselves that we will pay it off by the end of January, this is not always financially possible.
Not paying off debt can have other consequences besides having to dole out extra cash due to a high interest rate. If you are late on or miss a payment, you’ll not only be dealing with the high interest rate, but also with late charges and a potential lowering of your credit score. A lowered credit score can affect your ability to snag a great deal on your next car, appliance, home or other purchases – or may prevent you from obtaining future credit altogether.
During this holiday season, I would like to provide a few helpful tips to those finding themselves smothered in credit card debt. This list is not meant to be exhaustive of all remedies that might be available to you, but it is meant to cover common issues I have come across in my practice of law:
1. Call your creditor: If your credit card bill is spiraling out of control, it might be a good idea for you to call your credit card company and work out payment arrangements. The bottom line is your creditor wants their money. If negotiating with you will help them get their money, it is my opinion they will do it. You could negotiate a lowering of your interest rate or even an elimination of a late fee (this one usually only works for those who have a decent payment history with their creditor). Creditors are also known to sometimes close your account at your request, freeze any interest on the account, and allow you to pay off the debt in monthly installments. Please note that this option can still have an effect on your credit; however, it will not have as severe effect on your credit as having the creditors themselves close your account. You can even try to negotiate down the debt and offer a lump sum in exchange for debt elimination.
2. Consolidate your debt: If you have decent credit, you may be able to obtain a credit card which will consolidate all of your debt onto one card. This may be an excellent solution, especially if you can find a credit card which offers a lower interest rate than your current cards.
3. Refinance debt: If your credit has improved over the past year or so, but you currently find yourself a little bit in over your head with debt, you might want to renegotiate some of your debt in order to be better able to pay it off. For example, you could refinance your car loan, or, in some cases, your home. It probably wouldn’t hurt to speak to a financial advisor if you feel you have debt that can potentially be refinanced. This option can really save you money in the long run.
4. Beware of some loan consolidation programs: When you are in over your head with debt and a company is offering to ‘settle’ your debt with creditors for a fraction of your debt amount, it can be very tempting to enter into a contract with this company in the hopes of avoiding severe debt and credit consequences. However, beware of this seemingly wonderful solution – there are a few companies where the fees for their services are so exorbitant that your first few (or more) monthly payments to the company actually don’t even begin to pay off your debt. I have heard of some situations where your bills are not even addressed until the debt consolidation company receives a significant portion of their services paid – through your monthly installments. With that being said, there are probably some great debt consolidation companies out there; just be sure to review the terms and conditions of their plans very carefully. Paying a debt consolidation agency for services when your first few payments don’t go toward your debt can and will put your unpaid credit accounts into a severely delinquent status.
Here’s wishing you a debt-free, happy Holiday season.