Start 2001 with a fresh financial outlook. Over the next five issues of this newsletter, we'll offer New Year's resolutions to put you on firm fiscal footing.
Resolution 1: Get Out of Holiday Hock Holiday budgets are like holiday diets: You vow to restrain yourself, but when surrounded by temptations, you indulge, only to find yourself with a bloated credit card bill come January. Try this recipe for reducing debt.
1. Write down all your debts, their interest rates and their minimum monthly payments. Add up the total debt so you know what you have to pay off. Then make minimum payments on the low-interest debts. You will pay less interest and get out of debt faster if you pay off the one with the highest interest first. Once the higher-interest debt is paid off, apply its payments to the debt with the next highest interest.
2. Stop using credit. Do whatever it takes to halt the credit habit: Cut up the cards, put them in a locked drawer, bury them in the back yard. This way, you won't be adding to your pile while you're paying it down.
3. Use a debit card instead. A debit card is like a credit card, except that it deducts the amount of your purchase from your checking or savings account immediately. Check your account balance frequently to make sure you still have cash, but that will keep your spending under control.
4. Transfer balances to a lower-interest card. You probably receive offers for cards with low introductory interest rates. You can reduce interest payments by transferring balances to low-interest cards. But repeated transfers may hurt your credit rating.
5. Consolidate with a home equity loan. The good news is that the interest is probably tax-deductible; the bad news is that if you don't pay the loan, the bank can take your home away. Our calculator can help you determine if consolidation makes sense for you.
6. Call the creditors. They can be understanding, especially if they're afraid you're going to default on your loan. Ask them if you can work out a payment plan. As a last resort, you can hire credit counselors to do this for you, but your credit with the card company will probably be affected, if not your overall credit rating. Contact your local Consumer Credit Counseling Service for help.
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Use this calculator to see how long it will take you to pay off a balance.
