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AVOIDING THE POST-HOLIDAY BLUES BY PRUDENT DEBT REPAYMENT

Once the joy and good tidings of the holiday season have subsided, unpleasant reminders begin to appear in the mailbox in the form of higher-than-average credit card bills.  Some consumers may be prepared for their credit card statements, while others may be overwhelmed.  Either way, it is important to manage the way that the credit card debts are repaid in order to prevent a snowball effect that may cause some of the accounts to go into default.  A few suggestions for managing the holiday credit card bills:

–          Tackle the higher balance, higher interest rate accounts first.  If possible, pay more than the minimum payment in order to reduce the payment on the next billing cycle.

–          Stop using the credit cards until the balances have become manageable, otherwise, the debts will continue to grow.

–          If possible, use your income tax refund to pay off the higher balance, higher interest rate accounts.  A common mistake is for consumers to pay off the smaller retail store accounts, and still leave themselves with 1-2 large credit card balances.

–          Under no circumstances should you redirect funds for your house or car payment in order to pay a credit card bill.  While there are always repercussions to not paying a debt on time, the consequences of falling behind on your home mortgage or car payment are much more serious.

–          If paying all of the credit card accounts on time is not an option, consider consolidating the balances on a lower interest credit card.  However, remember to read the fine print or call the credit card company to determine what the interest rate will be on transferred balances, and how long it will last.

–          While there are income tax advantages to using a home equity line to pay off credit card balances, this should be a last option.  By adding this debt to an existing mortgage balance, you may run the risk of eliminating any equity in the house, or even being “upside down” where the debt against the house is greater than the house’s value.  This would make it difficult, if not impossible, to sell the house or refinance the house loans.

If after taking these steps you have lingering questions regarding your debt and the possibility of filing bankruptcy, schedule an appointment to discuss your options.