It's your credit

Dealing with post-holiday credit-card bills

Dealing with post-holiday credit-card bills

February 10, 2006|by LYNN F. LITTLE

A charge here, a charge there, and your holiday shopping has resulted in a stack of credit-card bills. So, how are you going to pay all those bills? Read on for some effective strategies for reducing your debt and taking control of your finances.

Begin by listing all of your debts. Include the balance owed, the monthly payment and annual percentage rate. Check your credit-card statements carefully to make sure all the charges are correct, and calculate your total.

Call your current card issuer and ask that they lower your interest rate. Tell the card issuer that you've been a good customer for X years, that you're making a resolution to pay what you owe, and you'd like a better deal.

If that doesn't work, shop around for a lower rate card and transfer existing credit-card balances. However, make sure you will get that lower rate on the balance you just transferred, because some card issuers have restrictions on balances transferred.


Even if the lower rate is a teaser or introductory rate for just 6 months, you could save several hundred dollars. For example, on a card with a balance of $1,000, the interest drops more than $300 if you switch from an 18 percent rate to a 12 percent rate, assuming you're only able to make the minimum payments over a period of time. But you need to pay off that balance before the introductory rate goes up again.

One of the advantages of using a credit card is being able to buy now and pay later. But some consumers take the pay-later concept to an extreme - they pay only the minimum amount due on their card's outstanding balance and end up paying the maximum costs.

The minimum payment, set by the card issuer, has been about 2 percent of your outstanding balance. While it might appear to be a good deal to pay only $20 a month for your holiday purchases, you need to consider how much those items will really cost when you add in the interest charges.

For example, if you charged $1,800 on a card paying 18 percent interest and pay only a minimum payment of 2 percent of the balance, it will cost you $3,800 in interest and take you 22 years to pay it off.

Try increasing your payment beyond the minimum. Depending on your balance owed, the extra amount you pay can make a major difference in reducing the total amount of interest you will pay. Visit and click on "Credit Cards" to access calculators that will help you understand the consequences of paying minimum payments. You also can use a pay-it-off calculator to determine what it will take for you to pay off a credit-card balance.

If you pay less than the minimum payment, you will be charged fees and could be reported to credit bureaus as delinquent. The negative information could result in an increase in your interest rate or the cancellation of your card.

If you have a savings account earning a small rate of interest, use your savings to pay toward credit accounts with higher rates. The difference between the interest you earn on your savings account and the interest you would pay on your credit-card debt can be a significant savings.

Pay your account on time, before the due date if possible, and don't go over your credit limit. If you don't follow these guidelines, you could be paying a late fee, an over-the-limit fee and increased interest.

Develop and follow a spending plan to help you find money to pay off debt, as well as to plan ahead for the next holiday season.

If you would like more information on developing a spending plan, send a self-addressed, stamped, business-size envelope to Maryland Cooperative Extension - Washington County Office, 7303 Sharpsburg Pike, Boonsboro, MD 21713. Mark the envelope, "Plan."

Lynn F. Little is a family and consumer sciences educator with Maryland Cooperative Extension in Washington County.

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