Step away from the cards," she says. "Put them down. Using them again will only make it worse. You have to acknowledge you are in debt. Realize it. Accept it. —Beverly Harzog, author
Many a New Year's resolution to get out of debt is being crushed by the worst ghost of Christmas shopping past: January's credit card statement. But financial experts say that people shouldn't give up in the face of holiday debt. Now, with a full year before next Christmas and with possible tax refunds in the mix, it's the best time of the year to banish holiday debt forever.
"Right now is a good time to take note and figure out how to pay off the debt," says Howard Dvorkin, the author of "Power Up: Taking Charge of Your Financial Destiny" and founder of consolidatedcredit.org.
Beverly Harzog, author of "Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made," says she is just now starting to hear from readers who say they overspent during the holidays.
"They make emotional decisions," she says. "It is predictable every year."
A different debt
Dvorkin says holiday debt is, in some ways, different than regular household consumer debt because it piles on top of other bills and is hard to eliminate. "People are still paying holiday debt from years past," he says.
Part of the reason the debt builds up so much, according to Harrine Freeman, a financial service counselor in Bethesda, Md., is peer pressure from family and friends. "There is a lot more pressure to spend during the holidays," she says.
Credit card solutions
Harzog says the first thing to do to tackle the debt is to stop using credit cards.
"Step away from the cards," she says. "Put them down. Using them again will only make it worse. You have to acknowledge you are in debt. Realize it. Accept it."
The first step, Harzog says, is to find an offer from a credit card offering zero interest. This can stop the debt from growing while paying off the debt. Harzog warns, however, that getting a new credit card can backfire. People with a pattern of misusing credit cards or people who shop to deal with their emotions should avoid this tactic or they will find themselves running up the balances again. "You have got to beat the credit card issuers at their own game," she says.
Dvorkin has a client who has been transferring a large amount of credit card debt from zero interest card to zero interest card while paying very little on the debt. He told the client that it was like playing musical chairs. "And eventually the music is going to stop," he says.
There are several ways to prioritize which debt to pay first. Radio financial guru Dave Ramsey recommends doing a "snowball" approach by paying the smallest debt first and working up to the largest debt — which he says gives people a quick taste of success as they conquer their debts.
Mark LoCastro, a spokesman for DealNews, says another approach is to pay off the debt with the highest annual percentage first even if it is the largest debt. "Get the big ones out of the way," he says. "They are the hardest to tackle, but paying them off will have the most impact and you will have more money."
Harzog calls this method "debt stacking."
"Pick something that works for you," she says. "The snowball method works fine, but the debt stacking method saves more money."
Harzog also suggests trying to negotiate with the credit card companies for a lower interest rate if you can't qualify for a zero interest card. "You will be surprised what you can get the credit card issuer to do," she says.
Dvorkin, however, says to be careful and not tell them you can't pay the bill because this may cause them to shut down the account.
"But saying, 'I'm looking for ways to reduce my bills and pay this debt off; can we get a lower interest rate to effectuate this?' is different than saying, 'I can't make my payment,'" Dvorkin says.
Another way to pay off debt quicker is to get more money to pay it off, and there's a simple way to do that: save.
LoCastro suggests freezing a gym membership, for example. Harzog says she switched to a less expensive gym closer to her home to save money.
Saving money can be as simple as eating at a Mexican restaurant instead of a steakhouse, Harzog says.
When LoCastro was first married, he and his wife examined all of their monthly expenses. They were surprised to see Starbucks coffee was costing a couple thousand dollars a year. "Scale back what you order," he says, "or make it at home."
Dvorkin says just buying generic brands instead of name brands can make a big difference.
Other ways to save, according to LoCastro, are trying Google Voice for phone service, shopping at thrift stores, avoid using ATMs and associated fees, buy music on Amazon instead of iTunes and so forth.
The money saved can be applied to holiday debt.
Another way to add money to that debt is to make money.
Kathy Schultz, the founder of LollyDaisy.com, says garage sales can work, but warns that people expect rockbottom prices. She recommends trying Thredup.com, a consignment website that makes it easy to sell you clothes.
She also recommend her own website, lollydaisy.com, for selling monogrammed and personalized items. Another consignment-like outlet is Just Between Friends, jbfsale.com, which organizes huge community events where people can sell items easily.
Freeman recommends selling things like cars, jewelry, art, furs — anything expensive. "Sell anything you can sell and to get money and pay down that debt," she says.
Next year starts now
The key, Freeman says, is to create a budget to see where the money is going and save for holiday spending.
LoCastro says websites, such as his own dealnews.com, can help people save during the holidays. If people know what gifts they want to buy early, they can sign up on websites that will alert them when those items go on sale.
"Listen to your family and friends to learn the things they want," he says, "Show that you listen and you do care. Planning to get those things way in advance will increase your chances of getting a good deal."
And when people buy things online, he says, do a search for coupon codes as well to save money.
"Do what is necessary to affect change in your life," Dvorkin adds. "If you are serious about getting out of debt, you need to deprive yourself and change your bad habits. The only way is abstention. But nobody wants to hear that."