Six tips to get out from under holiday debt in 2013

By ALEX VEIGA Published: January 27, 2013
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Many card issuers extend balance transfer offers, with some providing an introductory period of a year or more to pay off the transferred balances at no interest. However, that's not set in stone.

“Your introductory period is usually forfeited if you miss a payment,” said Bill Hardekopf, CEO of LowCards.com.

Banks also will typically charge a fee of 3 percent to 4 percent on the amount transferred.

The average interest rate on balance transfer cards is 12.59 percent, according to CreditCards.com. That's the rate borrowers can expect to pay after the introductory period on their cards ends. On cards offering a variable interest rate, borrowers can end up having a lower or higher interest rate.

Worried about taking on more credit cards? Griffin of Experian said credit scores put less emphasis on the number of accounts borrowers have than on how those accounts are used, namely, if your balances are high relative to the amount of credit you have available.

Experts differ on the wisdom of resorting to other options. “With a credit card, the worst thing that can happen is you default, your credit will go down,” said Garcia. “With a home equity line of credit, that could have implications for your homeownership and your continued relationship with that bank.”

Make a budget

Make a budget of your fixed household expenses, such as your mortgage or rent, utilities, car loan, insurance, and so on. Carve out a realistic amount of money for more variable costs, such as gas, groceries and entertainment.

Once you figure out a monthly plan that allows you to pay down your card debt, even if it means scrimping here and there, stick with it. The key to doing that is to remain on top of expenses.

Computer and mobile phone apps designed for tracking expenses abound. Your bank likely already has an app that can help you to keep up with charges on accounts.

Some of the most popular apps include Mint.com and Pageonce, which draw data from bank, credit card and other accounts to give users a comprehensive view of their finances and spending. They also help organize and track expenses, sending email alerts when bills are due, among other features.

Both are available for iPhones and smartphones running Google's Android operating system.

Garcia suggests one way to remove temptation from ill-advised impulse spending is to open a separate bank account without debit card privileges and have a portion of your paycheck directly deposited there. Then, you use that account to pay down your cards.

Use it, don't abuse it

The best way to get back on the right financial track is to get in the habit of paying off any charges on cards right away. It helps to reframe one's understanding of what credit is, Garcia said.

“When you use a credit card, you're tapping into a deficit — unless you plan to pay for it — rather than a reservoir of savings,” she said. “The person should ask themselves, ‘Can I pay off that balance every month?' and if I can't, what's that going to cost me?”

Get help

Feeling overwhelmed by debt? Counseling agencies approved by the U.S. Department of Housing and Urban Development offer free credit counseling, advice on making a personal budget and dealing with creditors. They can be found on www.hud.gov.