The (Christmas) Hangover

The euphoria of Christmas and the New Year has passed.

Hopefully, for most of us the two week Christmas holiday will be a pleasant memory, filled with images of family, friends, gifts, food, laughs and good times.

Towards the end of January the cold hard reality of what you may have spent in the lead up to Christmas will turn up in the form of a credit card statement and any leftover feelings of euphoria very quickly disappear. “Surely I didn’t spend that much money!”

At the time, you are caught up in the spirit of Christmas and purchasing gifts with a piece of plastic is easy. It never feels like you are spending your hard earned money because the cash in your wallet does not diminish and the balance of your savings never changes.

The question which now arises is, “What is the best way to pay the balance of my card off?”

I am not going to try and tell you what the best method of paying down the credit card debt is. Everyone’s circumstances are different and one method of repayment is not going to be suitable for all people.

I would however like to make a couple points;

1. Making just the minimum monthly repayment on your card may appear the easiest way out, but it can be very expensive. For example on a debt of $5,000 with an interest rate of 18%, by choosing to only pay the minimum repayment of $102 as per your statement, it could take you close to 30 years to pay down the debt with total accumulated interest reaching $12,000

By increasing the repayment to $250 per month you can reduce the balance to zero in two years and save close to $11,000 in interest.

2. The other very tempting method which we see advertised on a regular basis is the offer of transferring the balance of your current credit card to a new credit card provider with an applicable zero percentage rate.

Be aware the zero percentage rate is only applicable to the balance which is transferred. Any new purchases on the card will attract an interest rate of between 12% and 20% depending on the provider. Further to this, any repayments which you do make will first reduce the amount owed on the purchased items and not the balance you have transferred.

Also remember if you do not fully repay the outstanding balance which you have transferred to the new provider within the specified interest free period, which can be between six and 20 months depending on the provider, the monies owed will attract the new applicable rate of interest.

Whatever method you choose to pay down the debt it will require discipline and commitment.

If you don’t think you will have the discipline required, you could implement a direct debit via your bank so it happens automatically and you will never miss a repayment. Late repayments on your credit cards can have an effect on your credit history and rating.

Last word… when Christmas 2016 comes around don’t fall back into the bad habits of Christmas 2015, remember the pain you endured in the months that followed.

The Realise Your Dream blogs are written by Peter Kelly and Mark Teale. More information about the authors can be found here