How to pay down that holiday debt

Economics editor Chris Farrell

TEXT OF COMMENTARY

Tess Vigeland: If you find yourself avoiding the mailbox this month, I'm pretty sure I can guess why. All that generosity you so proudly displayed over the holidays is coming back to haunt you in the form of credit card bills. We told you to set a budget for all those gifts!

But if, instead, you're wondering how to pay down that debt, Chris Farrell has a primer.


Chris Farrell: Oh, I know: You set up a budget. You listened to your voice of virtue, the voice of "should".

But somehow between the online sales and the charitable contributions you spent more than you wanted. Or maybe you didn't bother with a budget since money was tight and you'd be careful no matter what, right?

Wrong.

The credit card bills coming due even have their own label: The Holiday Hangover. And this money hangover lingers and lingers.

Sure, credit card balances have fallen for 27 straight months as of November of last year. But don't get too excited. Consumer Reports says that as of October, almost 14 million Americans were still paying off credit card charges from their 2009 holiday purchases.

Think about that. With 2010 winding down, people were still paying the bill on 2009 celebrations and gifts.

What's more, numbers out from Mastercard suggest people went a little crazier this past year than they have in quite a while. Holiday sales jumped 5.5 percent, the best performance in half a decade.

Now what?

You know you need to clamp down on spending and free up some cash. But if you're like a lot of people, you owe more than what you racked up during the holidays. You were already carrying a balance on your credit cards -- and I mean more than one. The loans all carry different interest rates and the amount of each debt is different.

What's the best way to tackle those debts?

I like a math savvy technique. But don't worry it's very simple.

Get all your credit card statements together. Put debt with the highest interest rate at the top of the list. The lowest rate credit card is at the bottom.

Here's the trick: Pay the minimum on all the credit cards but the one with the highest rate. You're targeting all your extra savings at the high interest rate credit card. Attack it. Throw every penny you can scrounge up at it. And target the money into that one card.

When the highest rate debt is gone, go after the next highest rate credit card balance. And so on, down your list.

You'll pay least amount of interest this way. And you'll end up without credit card debt. Not bad. And being debt free, well, it sure makes for a happy year.


Vigeland: Economics editor Chris Farrell. We want your advice for getting through the holiday debt hangover.
So post your words of wisdom on our Facebook page or below.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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