As the credit card bills start rolling in this month from the recent holiday season, many consumers are going to get that queasy feeling that they've overindulged. There are antidotes for "debt hangover," experts say, but they require putting payment strategies in place — and sticking to them.
"I think some people are afraid of even opening up their bills," said personal finance expert Jennifer Openshaw. "But they have to stare Scrooge in the eye and tackle the problem head on. The more people do that, the more confident they'll feel — and the more they can do about it."
Consumers have a lot of card debt to deal with. Even before the 2007 holiday spending season began, Americans added more than $50 billion to their credit cards in the first 10 months of the year to reach a record total of $928.5 billion in October, according to the Federal Reserve. The additional spending in November and December undoubtedly pushed balances even higher.
Dick Reed, regional counseling manager with the nonprofit Consumer Credit Counseling Service of Greater Atlanta, said that January and February are the agency's busiest months.
"A lot of people make a New Year's resolution to get their financial house in order," he said. "But often, it's 'I spent too much on the holidays' that actually brings them in."
Reed said that the first step troubled borrowers have to take is to make sure they're current on their home mortgage or rent.
‘You need a place to live’
"No matter how bad things get, you need a place to live," he said.
The next step may seem obvious, but a lot of people don't take it, and that's to stop charging on your credit cards. If you don't do that, Reed said, "the bills will only get larger and the envelopes heavier and the stress greater."
Dealing with outstanding balances may require both increased cash flow and an aggressive repayment schedule, he said.
People who are heavily in debt may have to consider steps such as selling their second car, taking a part-time job on the weekends and slashing expenses for dining out and other optional purchases, Reed said. That will free up more cash to apply to debt, he added.
Payments should cover "more than the minimum" on every card — with any extra money applied to the card with the highest interest rate, Reed said.
"If you've come up with an extra $100, put it toward the high interest rate card first," he said. "Once that gets paid off, keep using that extra $100 on the next highest and the next, until you get all the cards paid off."
Openshaw, who is the author of "The Millionaire Zone," said that consumers should think about how the post-holiday bills make them feel.
"Do they make you feel upset? Do they make you feel sick?" she asked. "If so, it should motivate you not only to pay off the debt but to avoid a repeat next holiday season."
She suggests consumers pay down balances as quickly as possible.
"If you charged $1,000 for your holiday gifts and make only minimum payments for rest of the year, on a high-rate card you could be paying $300 to $400 in interest alone over the rest of the year," she points out.
Consumers also can try to negotiate better terms with their credit card companies, Openshaw said.
"Don't be afraid to pick up the phone and ask," she said. "Stress that you've been a longtime customer, that you've been paying on time and that now you need some time to get your finances in order."
She added: "If you're not getting anywhere, ask to speak to a supervisor."
A good source of tips for dealing with debt is a brochure titled "51 Ways to Save Hundreds on Loans and Credit Cards" published by the Federal Deposit Insurance Corp. It can be found at the agency's Web site, http://www.fdic.gov/consumers under the Consumer News section.
Both Openshaw and Reed said that consumers who can't get a repayment plan going on their own should seek professional help. Lists of nonprofit counseling agencies can be found at the Web sites of the National Foundation for Credit Counseling, http://www.nfcc.org, and the Association of Independent Consumer Credit Counseling Agencies,http://www.aiccca.org.