Did your Credit Card Debt Steal the Joy from your Holiday?

Unfortunately, going into debt during the holidays can be a reality for many.  Credit cards are an often an ‘easy fix’ for buying something, for which we really don’t have the money, when we really want to purchase a gift for a special person.  Many people promise themselves to pay it off by the end of January, but that’s not always financially possible.

This debt may have other consequences besides having to dole out extra cash due to a high interest rate.  You could be faced with other fees such as late charges and a potential lowering of your credit score, if you’re late on or miss a payment altogether.   A lowered credit score can affect your ability to obtain a great deal on a purchase down the road, of which you may be in great need, such as a new car or new home.  It may also prevent you from obtaining future credit altogether.

I would like to provide a few helpful tips to those finding themselves smothered in credit card debt. This list does not include all remedial options, but is meant to cover common issues which I have come across in my practice of law:

1. Call your creditor : If your credit card bill is spiraling out of control, you may be able to work out payment arrangements directly with your credit card company. The bottom line is, your creditor wants the money that you owe. If negotiating with you will help them get their money, many will do it. You might negotiate a lowering of your interest rate or even an elimination of a late fee (this one usually only works for those who have a decent payment history with their creditor). Creditors might close your account at your request, freeze any interest on the account, and/or allow you to pay off the debt in monthly installments. Be aware that this option can still have an effect on your credit; however, it will not have as severe of an effect as having the creditors themselves close your account. You can even try to negotiate down the debt and offer a lump sum in exchange for debt elimination.
2. Consolidate your debt : You may be able to find a company that offers a lower interest rate than your current credit card company.  If you have decent credit, you may be able to obtain a credit which will consolidate all of your debt onto one card.
3. Refinance debt : You might want to renegotiate some of your debt in order to better be able to pay it off.  You could refinance your car loan, or, in some cases, your house. It probably wouldn’t hurt to speak to a financial advisor if you feel you have debt that can potentially be refinanced. This option can really save you money in the long run.
4. Beware of some loan consolidation programs: When you are in over your head with debt, it’s important to make smart decisions.  There are companies that offer to ‘settle’ your debt with creditors for a fraction of your debt amount.  It can be very tempting to enter into a contract with such a company in the hopes of avoiding severe debt and credit consequences. However, beware of this solution.  There are some companies whose are so exorbitant that your first few (or more) monthly payments actually don’t even begin to pay off your debt. In some situations, your bills aren’t even addressed until the debt consolidation company receives a significant portion of their money for services, through your monthly installments.   This can and will put your unpaid credit card amounts into a severely delinquent status.  With that being said, there are probably some great debt consolidation companies out there – just be sure to review the terms and conditions of their plans very carefully.