Holiday Debt

Holiday Debt

Holiday Debt

Steps to Begin Digging Out of the Holiday Hangover of Credit Card Debt

Are you going to be one of the thousands of Americans who will wake up after the holidays, get out to the mailbox and discover a stack of bills. and credit card bills that you cannot pay? has some statistics and solutions for helping you cure the holiday credit card hangover.


The National Retail Federation forecasts each year what consumers plan to spend over the holidays. For 2006, American consumers plan to spend about $800 each. ( default.asp?folder=press/release2006& file=06holidaysurvey1.htm)

The National Retail Federation survey cited above also found shoppers plan to take advantage of sales to spend another $100 on themselves.

Total consumer debt stands at $2.37 trillion, excluding mortgages (seasonally adjusted). Of that, $857 billion is revolving debt (seasonally adjusted). (http://www.federalreserve .gov/ releases/G19/Current/). Mortgage debt brings the total to approximately $9 trillion.

Total American household consumer debt averaged $11,840 in 2005. (Source:

The rate of personal savings in the United States dipped below 0% for the first time since the great depression, hitting negative .5% in 2005. (Source:

More than 60% of Americans revolved a balance on their credit cards in 2005. (Source:

Seven out of 10 low and middle-income households reported using their credit cards as a financial safety net, i.e. to pay for car repairs, rent or housing repairs and medical expenses, rather than relying on savings in 2005. (Source:

OK, so now we now there is a lot of debt out there. But what to do if you are one of the American families struggling with your bills. We, at, have thought of some things that can help you out.

How to pay off holiday debt

Begin by making sure you've knocked out overspending and have current spending in control. First, write down all your expenses in two categories: necessities (housing, food, clothing) and extras (designer clothing, movies, dinners out, lattes). Second, give yourself a weekly budget for extras, and if you go over, cut yourself off.

Go on a "crash diet." Just as necessary as the post-holiday diet to shake off those extra pounds, the "debt diet" will get rid of holiday debt. If your expenses exceed your income, take immediate action.

Eliminate extras completely.

Prioritize debts, with secured debt first (mortgage, car). A mortgage payment should take absolute first priority.

List unsecured debts (which include all the credit card holiday debt, and any other loans you may have) in order of highest interest rates. Make minimum payments on all but the highest interest rate. Use every cent of available income to make large payments on the highest interest-rate card. When that one is paid off, pay the big payment plus the old minimum payment on the next highest rate card until it's paid off. Continue until you've eliminated your debt.

Find help - carefully. Your best resource is handling debt yourself, because it protects your credit score. But if that's impossible and you are in serious debt, understand your options:

  1. Negotiate - If you cannot make even minimum payments, call your creditors and ask for temporary hardship status. Some creditors will work out payment plans with you. Pro: Can provide longer payment terms. Con: Individual consumers may find it difficult to negotiate effectively with large creditors.
  2. Debt resolution - Debt resolution firms negotiate with creditors on the consumer's behalf to lower principal amounts due. Consumers then pay the debt resolution firm a percentage of savings obtained. Debt resolution can obtain significantly better repayment terms than achieved with Chapter 13 - and with no bankruptcy judgment - especially for those facing financial problems because of a catastrophic event or medical problems. Pro: Savings can often reach up to half the full amount owed. It's the fastest way out of debt without Chapter 7 bankruptcy; consumers can be out of debt completely within three years. Con: It can impair your credit score.
  3. Credit counseling - Most credit counseling agencies receive funding from creditors, putting any allegiance to consumers in question. And, in constructing "debt management plans" for consumers, they will reduce only interest rates, not principal owed. Pro: Lower monthly payments - possibly. Con: Up to five years of making payments, and minimum payments may not significantly decrease. Enrollment in credit counseling also shows up as a negative on a consumer's credit report. New bankruptcy laws demand that consumers seeking bankruptcy protection obtain credit counseling from an approved agency within six months prior to filing for bankruptcy. However, the Internal Revenue Service recently revoked the tax-exempt status of all 41 credit counseling agencies it audited, effectively shutting down more than half the industry. Fewer than 50 government-approved credit counseling agencies are in operation.
  4. Chapter 7 bankruptcy - Wipes out almost all debt. Pro: Eliminates debt. Con: Long-term adverse credit rating consequences. Chapter 7 protection is more difficult to obtain in the wake of last year's bankruptcy reform.
  5. Chapter 13 bankruptcy - Even with bankruptcy reform in place, Chapter 13 filings - which require consumers to repay debt on a repayment plan - will still be available to those whom the state determines, through its means test, have enough income to pay back at least some of their debt. Pro: May reduce debt and stop collection calls. Con: The publicly available bankruptcy judgment remains on a consumer's long-term credit report for 10 years. Repayment terms generally are less favorable than those found with debt resolution.

What to do next (to avoid the problem next year)

  1. Take hold of your finances and learn to control spending by educating yourself on often-complex personal finance issues.
  2. Budgeting is a mainstay. It need not be "rocket science," and can be very straight-forward (see above).
  3. Many Web sites exist now for personal finance education, including
  4. Some sites also offer comparison shopping for everything from long-distance phone service to mortgage rates. Using a site that offers both helpful information and comparison shopping can make basic financial tasks more efficient and pleasant.

"For those who are over their heads in debt, taking action quickly is critical," says Brad Stroh, Founder of, "before it's too late to prevent any temporary hardships from becoming permanent financial crises."