How to Cure a Credit Card Hangover

Ah, late January… a time of colder temperatures, snuggling around a warm fireplace…and December’s credit card bill waiting like a bomb in your mailbox.


Did you overspend during the holiday season? If not, many people you know made up for you. According to this Bloomberg Businessweek article, consumer debt rose more in November of last year than it had in 10 years.

Although analysts call this a “good sign” for the economy, doesn’t this statistic frighten you? Weren’t we just talking recently about many people losing their homes because of too much debt? People in the arts, especially, shouldn’t take on debt they can’t afford. In many cases, our income streams bounce around enough that we shouldn’t be spending next month’s paycheck that may never arrive.

But, if you overspent over the holiday season, there’s nothing to do now but clean up the mess. It won’t be easy, but with a good plan and the right tools, you’ll be back on your financial feet in no time. Here are my four steps to curing your credit card hangover:

  1. Write out all the debt. On a spreadsheet or piece of paper, write the total amount, monthly payment, interest rate and due date of each bill. People avoid this step, because it’s painful to have all of your debt written in one place in front of you. This step is supposed to be painful! If it doesn’t hurt to look at your debt, you may not be motivated to pay it off quickly.
  2. Create a small cash reserve before you start. If you have to make minimum payments while you accumulate cash, that’s okay. You won’t regret having a reserve when your dishwasher breaks down and you don’t have to use a credit card to have it repaired.
  3. Attack the lowest interest rate or small balance cards first. If you can tackle a small balance credit card to gain more monthly cash flow, do that first. If not, focus on the card with the highest interest rate so you pay less money over the long run. Maximize your effectiveness when paying down this card by only making minimum payments to the rest.
  4. Take the credit cards out of your wallet and pay cash for as many transactions as possible. Half of avoiding a credit card problem is to live a cash-based lifestyle. You’ll always have the money you need and won’t have to worry about your next booking to make the next payment. By working from a budget, you should be able to effectively pay down your debt and stay within your means. This step sounds easy, but if you’ve been using a credit card for a long time, you’ll notice immediately what a reflex action it is to reach for the plastic when the cashier asks for money. You can’t use it if it isn’t there!

One other point: If you are in a relationship, come clean about your debt and your plans to eliminate it, with your partner. Sure, this may put pressure on you, but in this case the pressure is constructive. Plus, having a friend to help cheer you on while you pay down debt is more likely to work than going it alone.

I read yesterday that many divorce attorneys call January “divorce month” I was amazed that I’d never heard this before. But apparently, after all the parties end and people are left with only memories and financial problems, couples decide it’s easier to part ways. That felt really sad.

2012 is a great year to promise yourself that you’ll clean up lingering debt problems and begin living a life of prosperity. Often, I meet people who tell me that their goal is to get out of debt. I believe that goals are best expressed as positive things: buying a home, becoming physically fit, or improving your craft in a specific way are all “goals.” Debt is a negative, strangling your ability to reach those plans. That’s why it’s so important to tackle debt now. You can’t reach your goals until your debt plan is operating effectively.

You have better things to do than to worry about holiday overspending. You’ll feel great when you take control of your debt and begin the road to recovery.