Holiday Spending-Will You Be Prepared This Year?

As the holiday season approaches, it is good to keep in mind that it is typically the time of year when consumers have a tendency to pile on credit card debt. 

It's easy during the holiday season to ignore the budgeting advice of consumer credit advisors and binge on credit cards. As the new millennium dawns, many of us might find that our generous gift-giving has left us with credit card bills that may take several months to pay off. 

If you find yourself in this situation, the following tips may come in handy: 

• Determine how much you owe and prepare a detailed accounting of your income, other assets, and expenditures. Eliminate all unnecessary costs from your budget such as eating out, buying magazines, or renting videos. Resist that great sale item, even if it's a great bargain. Prepare or revise your budget to reflect holiday bills. 

• Since credit card interest is usually greater than the interest your savings account earns, consider paying off all of your holiday bills at once using your savings. However, don't build your credit card balances back up, and make sure you pay yourself back each month until your savings are restored. 

• If you own real estate, consider switching from credit card debt to a home equity loan, which typically has a lower interest rate than other loans. You can refinance your mortgage and use the money to pay off your credit card balances or other loans. And an extra benefit is that you will receive a tax deduction. But be careful-if you're unable to make your payments you could lose your home and your credit rating. 

• Get a temporary second job. All budgets are built on money coming in and money going out. If you can't reduce costs, increase your income. 

• Stop using your credit cards. As you increase your debt, it becomes harder to stick to your budget. Cut up the cards you don't need, and leave the rest at home to use only in emergencies. 

• If you must use credit cards, switch to lower interest cards. Different credit card issuers offer different rates, so shop around to find cards with the lowest rates. Then destroy the old, higher rate cards! 

• Another way to reduce interest rate debt is to transfer the credit card balances you have on a higher rate card to a lower rate card. For example, if you maintain a $1,000 balance with an 18% interest rate, it will cost you $180 in interest per year. If your rate is 14%, it will cost you $140, a $40 savings. 

• If your credit card limit is too tempting, ask your lending institution to reduce it. This will enable you to maintain a line of credit that you are comfortable with and may help prevent you from overspending. 

• Another alternative is to trade your credit card for a charge card. Although the terms "credit card" and "charge card" are often used interchangeably, they are different. Charge cards require you to pay the balance in full each billing period, while credit cards allow you to borrow money and repay it, along with interest. Charge cards do not offer credit or charge an interest rate, and may help you spend less knowing you have to pay the bill in full. 

• Trade your credit card for a debit card. Each time you use a debit card, the money is automatically withdrawn from your checking account, as if you had written a check. You do not receive a bill, and there is no line of credit or interest rate. But be careful to keep your debit cards in a safe place. If someone abuses your debit cards, your bank accounts could be cleaned out before you notice the card is missing 

• If you find yourself unable to make your minimum payments, talk to your credit grantors and work an alternative repayment plan. Denying the problem or ignoring your bills can hurt your ability to get credit for up to seven years. 

• Seek professional advice from a legitimate financial advisor such as the Consumer Credit Counseling Service, a nonprofit organization with over 1,000 offices nationwide. For the office nearest you, call toll-free 1 (800) 388-2227.