Tips for Recovering from Credit Card Debt in the New Year

by Jessica on December 22, 2010

Tips for Recovering from Credit Card Debt in the New Year Many people rely on credit cards to help them through the expense of the holiday season. Those last minute gifts can really add up and if you run short on cash it's not unusual to reach for the plastic to help you get through it. By the time the credit card statements start arriving in January, though, it can be hard to pay off the entire balance on each card in full. This starts a cycle of high interest debt that gets carried from one month to the next, and if you don't have a plan to recover from credit card debt, you could find yourself in debt for years to come.

Here are some tips for dealing with your credit card debt in the New Year:

Commit to Getting Out of Debt

The longer you allow credit card balances to carry over from one month to the next, the more you'll pay in interest.  Make a commitment to spend the first few months of the New Year getting yourself out of debt and set aside some of your salary every week to pay off credit cards.

If you have more debt than you can reasonably pay off in a couple months, consider a balance transfer credit card with a 0% interest rate.  With one of these cards, you can move your high interest debt to the 0% card and pay it off interest free. Plus,if you can't completely pay off the debt before the 0% rate expires, apply for another 0% APR credit card and transfer again. 

If you take this approach, avoid the temptation to spend the new credit you have available. You've made a commitment to get out of debt, so be sure to stick to it, even if that means cutting up your credit cards.

Ignore Minimum Payment Amounts

You can't expect to get out of debt by paying just the minimum payment. It probably seems comfortable to send the small minimum amount required, just $30 or so to each credit card, but this is a strategy that will leave you in debt for many years to come. If you are waiting for a balance transfer to take place, you still want to send as much money as you can to your credit cards to reduce the amount of interest you're paying.

If you are simply paying the minimum because that is all you can afford, try to cut back on frivolous expenses as much as possible and use this money to pay down debt. If you owe your credit card company, the money in your pocket is really a high interest loan, so don't spend it as if its extra money. Instead, think of it as borrowed money.

Stop Using Your Credit Cards

If your goal is to pay off credit card debt, you'll also need to stop making new purchases with them.  At a minimum, commit to using cash-only while you are repaying holiday credit card debt.  It helps to use a personal budget calculator and keep track of the money you receive and the money you spend so you can see where you are overspending and where there is room for improvement in your money management.

Having a personal budget will not only help you get out of debt, but will help you become more disciplined with your finances. This will not only help you in the short term, but also help prevent you from falling into debt in the future. If you have had difficulty sticking to previous budgets when using credit cards, then ditching plastic may be the best way to make sure you stay on the path to becoming credit card debt free in the New Year.

Photo Source: Alan Cleaver http://www.flickr.com/photos/alancleaver/

This post was featured in the Carnival of Wealth at Personal Dividends.

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