It’s easy to get wrapped up in the holiday spirit and get a little too credit-tipsy buying gifts. It’s all fun and games until you get the bills in January – and the “holiday credit hangover” hits your finances and credit scores with full force.
But be warned … while paying more interest on your increased debt is certainly a discomfort for your wallet, it may not be your biggest source of pain. Your credit card balances have a direct impact on your credit scores, and the longer you wait to address the symptoms of your holiday hangover, the more your credit scores could suffer.
Here are a few remedies to cure holiday hangover symptoms and protect your credit scores:
SYMPTOM: Scores drop because of an elevated credit utilization rate. The closer your credit card balance gets to your card limit (your credit utilization rate), the riskier you look to creditors.
REMEDY #1: Pay down your debts quickly. Send more than one payment every month and pay more than the minimum payment. Finance charges are generally applied to a balance that is not paid in full each month. Finance charges are calculated based on your balance and interest rate, and the higher they are, the higher the finance charge. Making multiple payments that are more than the minimum due can lower your finance charge.
REMEDY #2: Raise your credit limit. But don’t use it! If your credit card company will agree to increase your limit, it will put more daylight between your card limit and your balance. The lower your credit utilization rate, the higher your credit scores.
SYMPTOM: Higher monthly payments due to bigger balances and finance charges. As you carry a bigger balance, your minimum payment amount increases – and your interest rate really comes into play.
REMEDY: Reduce your interest rate. If you are a long-time customer in good standing, call your creditor and ask for a lower interest rate. It could reduce the monthly payment amount due, allowing you to pay more than the minimum and clear the debt faster.
SYMPTOM: Multiple credit cards carrying high balances. Carrying high balances on multiple cards poses a serious threat to your credit scores – and your stress levels. If you are paying just the minimum amount due every month, it’s hard to make a real dent in your balance because of the finance charges.
REMEDY: Target just one card first. If you’re carrying balances on multiple cards, it’s a long uphill trudge to make headway on all those debts. Putting your energy (and extra cash) into getting totally free and clear of one balance can boost your spirits and resources to tackle the next one. This will also help your credit scores because it will lower your overall credit card balance owed, thereby improving your credit utilization rate.
Don’t let a lingering holiday credit hangover hurt your scores. Carrying a heavy balance, month after month, only increases the likelihood that your scores will suffer prolonged, serious side effects if left untreated. Ideally, to avoid the headache of higher monthly payments, you’d pay down your holiday tab with the same speed and zeal it took for you to rack it up.