A wallet-emptying shopping binge and New Year's debt hangover are mainstays for many consumers.
And now that the holiday bills have arrived, many face the daunting task of whittling down the mountain of often high-interest credit card debt before it gets out of control.
That task is made more difficult this year because most paychecks have been reduced because Congress and the White House allowed a two-year reduction in Social Security payroll taxes to lapse at the end of December.
Although many cardholders have kept their credit card debt relatively low since 2010, their average debt is expected to grow by roughly 8 percent to $5,446 by the end of this year. That's the highest level in four years, according to credit reporting firm TransUnion.
That suggests some consumers could end up carrying at least a portion of their 2012 holiday debt, and paying interest on it, well into 2013.
“The worst thing you can do is stick your head in the sand and not begin to change,” said Norma Garcia, manager of the financial services program for Consumers Union, publisher of Consumer Reports.
Here are six tips on how to detox your finances this year.
Add up what you owe
First on the debt to-do list is to take stock of the damage. That means reviewing credit card bills, bank statements, and other accounts to determine how much you owe and how that translates into monthly payments.
Experts also recommend getting a copy of your credit report if you haven't done so in more than a year.
“That way, you'll know exactly where you are, in terms of what's being reported to the credit reporting companies,” said Rod Griffin, director of public education for credit reporting firm Experian.
Consumers are entitled to get a credit report from the three nationwide credit reporting companies free of charge every 12 months. Copies can be obtained at AnnualCreditReport.com.
A credit report can help you understand how your debt, and your payment history, will be perceived by potential lenders.
It also underscores the need to bring down card balances, as high balances are viewed as a sign of risk.
Get a payment plan
Paying down credit card debt requires discipline.
One oft-advised strategy for borrowers carrying balances on two or more credit cards is to rank the cards by their interest rates and then make the biggest monthly payment on the card with the highest interest rate. For the rest, only make the minimum monthly payment. The process is repeated once the card with the highest rate is paid off.
This approach reduces the portion of payments going toward interest.
Griffin said some borrowers might be better off funneling the biggest payments to the card with the lowest overall balance. That enables a cardholder to pay off a card entirely more quickly. This can provide a psychological boost and reaffirm that it's possible to conquer debt.
Remember this: If you used credit cards to take advantage of holiday sales, you may quickly lose any savings because you're allowing balances to linger.
A survey by Consumers Union found that half of the respondents are racking up interest charges by carrying a balance.
For those who don't have a pile of cash that they can draw upon to pay down their debt, the next best option is to lower the interest charges.
You can ask your credit card issuer to do you the favor, but don't count on it. A more realistic option is to consolidate your card balances into another card with a lower interest rate.