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Curing the holiday debt hangover

By Philip Vyce, Chief Petty Officer, U.S. Navy (Ret.) and Military Relations Manager for Pioneer Services

Every year, millions of Americans quickly discover that all those presents under the tree have led to a mountain of bills in their mailbox. Consumer groups call it the “holiday debt hangover,” an affliction that affects millions of Americans each year after the holiday season (to the tune of $63.6 billion in credit card debt alone in 2006, according to Consumer Reports).

For military families, it can be even more difficult due to tighter budgets and lower pay than civilian counterparts. Add in the stress of having loved ones deployed and the pressure can be difficult to handle for any military spouse.

There is a cure, however, and there are a few things you can do to not only recover from this past holiday season, but also make sure you don't fall victim next year.

Paying off last year
The Web site notes that the average household charged $1,100 in 2006 for holiday gifts. Consumer Reports noted on CNN that "credit cards can be hazardous to your holiday spending." But that's not to say that credit cards aren't without their merits—they are easy to use and accepted virtually everywhere.
So if you are going to use a credit card to do most of your shopping, take a few things into consideration:

  • Stick to your budget—It's easy to overspend without even knowing it since you can just keep buying until you hit your credit limit (or worse, go over it). Try to resist the urge to get a little extra here and there since those purchases can add up quickly.
  • Don't buy more than you can pay off in full—Credit cards become dangerous when you just make minimum payments month after month.

For example, if you had $4,500 on a card with a 15 percent rate, and you made just the minimum payment every month (four percent of the balance), it would take you 134 months (11 years) to pay off and you would have to pay nearly $2,000 in interest. Even if you moved that balance to a card with an interest rate of only seven percent, it would still take you 111 months (9 years) to pay the balance in full.

If you cannot pay it off in full, do whatever you can to pay off more than the minimum amount. And if your spouse has some sort of bonus coming (combat zone exclusion, hazardous duty pay, etc.), consider using that to pay off the balance.

  • Use the lowest rate card you have—This may seem like a no-brainer, but if you have more than one credit card, it's important to double check the rate for each one. Use the one with the lowest rate for your purchases while paying off the one with the highest rate first. This way you will pay less interest on your purchases now by using the low rate card, and be able to potentially save thousands of dollars in interest payments later by paying off the high rate card first.

If you simply find yourself buried with credit card bills to the point that you're not sure what to do, consider going to your bank or credit union and getting some sort of consolidation loan. While the monthly payments may be a bit higher when compared to a minimum credit card payment, it can be a vital part of striking a balance between your monthly budget (something that is vital on a tight income) and long-term financial success. You'll also know exactly when the debt will be paid, something that cannot be underestimated.

Preparing for next year
Once you get your past spending taken care of, the next step is to plan ahead for next year's holiday. There are several ways to do so:

  • Plan ahead—Create a list of everyone who you would like to give gifts to throughout the year, including the holidays, and then create a budget. Then, keep the list at all times so you can buy presents as you find them throughout the year. The goal is to spread out the spending over time, instead of suddenly needing several hundred dollars all at once. It can also eliminate impulsive—and often costly—last minute decisions, and maintains preparedness for unexpected bargains.

  • Make something—Have kids make something from the whole family. The gift of food almost always draws rave reviews. Or maybe building something with wood or metal is a viable idea. The goal here is creativity and cost-effectiveness, as well as a personal touch that makes the gift much more special.

  • Consider a group gift—If family members and others will be purchasing a gift for the same person, consider pooling money to buy a single gift. A small contribution from several people is transformed into a larger gift when leveraging buying power.

  • Do something special—Offer to spend time with a recipient in a way that is meaningful. For a child, that might be helping build a snow fort after the first snow or spending the afternoon at the movies or in the park. For a grandparent, it might be helping with repairs around the house or planting flowers in the yard. A coupon for free "babysitting" is always a welcomed gift for parents that cannot otherwise get away. Again, creativity is the most important thing.
  • Make a donation to charity—For those who seem to have everything, giving them one more "thing" won't mean much. But making any size donation to their favorite charity in their honor would be a wonderful blessing and a special way to honor them. As a bonus, you can also get a tax deduction.

While these tips can be helpful, they won't mean much without financial discipline. So maintain the budget you drew up, avoid those last-minute decisions, and find creative solutions for sometimes-difficult problems. If you do, it'll make the holiday celebrations that much more sweet.

About the author
Philip Vyce spent 21 years on active duty in the U.S. Navy before retiring as a chief petty officer. He is currently the military relations manager for Pioneer Services in Hampton Roads, Va., where he serves on the boards of the Armed Services YMCA, is a Task Force Chairman for the Chamber of Commerce, and is active in a number of local military organizations. He is also an Accredited Financial Counselor and a Certified Credit Report Reviewer.

