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Digging yourself out of holiday debt

Posted at 4:36 PM, Dec 26, 2019
and last updated 2021-03-18 09:19:15-04

BALTIMORE — During the holidays, it's easy to get wrapped up in the gift-giving spirit, but now's the time to face the credit card bills.

Loyola University Maryland accounting professor JP Krahel advises against waiting to assess the damage. Start by tallying up everything you owe then work on knocking out the worst debt first.

"Credit card is among the worst, right up there with payday loans, because the interest is highest and it doesn't do you any tax favors," Krahel said.

He recommends creating a plan to pay it off quickly. If that's not possible, balance transfer credit cards with no interest or fees can buy you time and savings.

"The best obviously is the zero interest loans, the layaway things you can pay over time, and the merchant, whoever it is, doesn't charge you any interest at all, that's the best scenario," said Krahel.

And prioritize paying off credit card debt and personal loans over student loans or home equity loans. The math is tedious, but can significantly impact your financial future.

"If I've got two debts, let's say one's at 7 percent, one's at 8 percent but the 8 percent is tax-deductible, then really I may be only paying 6 percent if you factor in tax savings. So you want to do that math. It's boring, it's difficult, I know, but it's worth the time because if I can save myself a few hundred bucks every month, I'm going to do it! And you prioritize, you hit hardest the debts that are hitting you hardest," said Krahel.

Nonprofit debt consolidators accredited by the National Foundation for Credit Counseling can help consumers struggling with debt and in need of a management plan. However, be wary of debt settlement companies who advertise negotiating your repayment. If you stop making payments, you risk ruining your credit score.