Reduce Your Debt this Holiday Season

/ BY / Personal Finance

It’s hard to resist the urge to splurge during the gift-giving and celebration season. You may start out with a firm resolve to stay within a budget and limit the amount you spend. But a last minute gift, a deal that’s too good to pass up or even an unexpected household or medical emergency can end up breaking even the most carefully planned budget and push you into debt. Fortunately, there are ways that you can start cutting down the amount you owe during this holiday season and into the new year.

One way to get on top of your debt is to investigate some of the credit card offers that are available to you. That may seem like a strange way to solve the problem, but you may be able to benefit from the special introductory terms that some of these cards offer. If you have good credit, for example, you may qualify for zero interest credit cards or for zero balance transfer credit cards. The big advantage to such cards is that you can put your entire monthly payment towards reducing your debt instead of having a big chunk of it going towards the interest.

With a zero interest credit card, you can make new purchases on your card for a set period of time—often six months to a year—without having to pay any interest on those charges. A zero balance transfer credit card will allow you to move your debt from a high-interest credit card (or several cards) to the new card. You won’t have to pay interest on that transferred balance for a specified period of time.

While such cards can be a great way to significantly reduce your debt, you will need some self-control to use them effectively.

  • You have to make payments on time. If you’re late with even one payment, the credit card company may revoke the zero interest rate deal, and you’ll be stuck paying interest on the balance at the card’s current rate. (And remember, people who miss payments or make payments late will be charged a higher rate of interest than those who meet their obligations on time.)
  • The zero interest deal only lasts for a limited time, so take advantage of it by paying down your balances. It’s tempting to buy more when you know that you don’t have to pay interest on your purchases. But that limited zero-interest period will end before you know it, and you’ll be looking at monthly interest charges. If you’ve run up a larger balance, paying interest on those debts can make your financial situation even worse.
  • Don’t assume that you’ll be able to move your balance to another zero balance transfer credit card once you have to start paying interest. With the economy still uncertain, you can’t predict whether the credit card companies will continue to make such offers or whether you’ll still be eligible for them.
  • Consider this a one-time solution. Before the great recession, many people dug themselves deeper and deeper into a financial hole by continually transferring credit card balances to new zero-interest or low-interest cards. Don’t make that mistake. For one thing, every time you apply for a new card your credit score takes a slight hit. (Lenders and credit card companies don’t like to see you applying for credit too frequently.) Plus, you don’t need more than a few credit cards—and canceling cards that you’re not using also has a negative effect on your credit rating.

If you’re serious about reducing your debt this holiday season, limit the use of your credit cards altogether. Tuck away the zero balance transfer credit card and don’t use it again until your balance has disappeared. If you absolutely have to charge something, use the zero interest credit card—and make sure that you’ve paid off that balance before the interest charges kick in.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.