If you accrued some debt during the holidays (or earlier)—don’t panic! Jason Steele has pointers for eliminating credit card debt in the year ahead.

Many of us have started the new year under a mountain of credit card debt: We spent too much on gifts, we had to pay a premium to travel, and—let’s face it—some of us got carried away during Black Friday and/or post-Christmas sales.

Having credit card debt is a horrible feeling. Each month, you dread receiving your statement and are shocked by all of the purchases, the balance, and the interest charges. As unsecured debt that is never tax deductible, credit card interest is more costly than other types of loans such as a home mortgage, a car loan, or a student loan. Plus, it’s just too easy to continue to rely on a credit card for daily expenses and get further into debt.

Understand How the Credit Card Industry Works

I’ve learned that the key to paying off your credit card debt is to understand how the credit cards work and how interest is calculated. There’s a reason so many credit card commercials are on television, and my mailbox is always filled with applications for new cards. In both good times and bad, the banks make great money on their credit card lines—and they will do everything they can to get you to use their products. So it should come as no surprise that card issuers are willing to go to great lengths to provide you with a reason to switch to their card, including interest-free financing offers.

Take a Break from Interest Charges

Banks lure in new customers by offering zero percent APR promotional financing offers on balance transfers. These offers allow you to transfer your existing balance to a new credit card, and take a break from interest charges. By law, these promotional financing offers must last at least six months, but there are some current offers that extend for well over a year. I know that this sounds too good to be true, but the banks are betting that you will switch credit cards, enjoy their promotional financing, and then continue to be their loyal customer for years to come.

Of course, there are a couple of catches: First, nearly all of these interest-free balance transfer offers will require paying a 3 percent balance transfer fee, which gets added to the new balance. One of the rare exceptions is the Slate card from Chase, which offers new customers 15 months of interest-free financing on balance transfers, with no fee. Nevertheless, a one-time 3 percent fee is a pittance compared to the interest charges that can be incurred over 12 to 21 months with the double-digit interest rates of most cards. In addition, the balance transfers are not permitted between two credit cards issued by the same company, as the point is to get new customers.

Finally, these zero percent APR balance transfer offers are only available to applicants with good or excellent credit. But for those who can qualify, there’s no better tool for getting out of debt than eliminating interest charges for a year or more. And the key to maximizing these offers is to steadily pay down debt throughout the promotional period, with the goal of paying it off before the standard interest rate begins to apply. Since 100 percent of each payment will go to the principal, these interest-free financing offers allow cardholders to pay off their balance quickly, and with no interest costs. These offers represent a powerful tool for paying off debt—but it won’t happen when cardholders procrastinate.

Problems with Credit and Debt?

The people in the toughest situation are those who have debt, but don’t have a high enough credit score to qualify for a zero percent APR balance transfer offer. It’s common for debt to cause credit problems, and having a high balance by itself will hurt a cardholder’s credit score. In this case, it’s time to pull out the stops to hack the credit card’s system for calculating interest.

With a credit card, interest is calculated based on the account’s average daily balance, so the trick to minimizing charges quickly is to reduce that balance as much as possible. Most credit card users are in the habit of making their single required payment each month—just before the due date. There’s actually a more efficient way to reduce interest charges and pay off a balance sooner: Make multiple payments each month, as soon as the money is available. With this tactic, the average daily balance shrinks on the day that a payment is made, and each day after, cutting interest charges faster than waiting until the payment is due. Furthermore, every day that a dollar is sitting in a bank account, it earns little if any interest, while a credit card balance is racking up huge charges each day. Making frequent payments can keep your money from burning a hole in your pocket, and being spent on other (perhaps unnecessary) things.

Another hugely important factor in paying off your debt is to continue to make on-time payments on every account, which will improve your credit score. Doing so prevents outrageous penalty interest rates from being imposed, and as your credit score rises, you can contact your card issuer(s) and request lower interest rates.

When Nothing Seems to Work…

For a lot of people, the mountain of post-holiday debt can collide with other sources of financial stress, such as medical bills, job loss, or a major repair to their home or car. At some point, it may seem like no progress is being made, and the debts keep growing larger. This might be the time to consider speaking with a nonprofit credit counselor who can work with creditors to help consolidate debts into a single, manageable payment. In addition, these services can also provide perspective, emotional support, and help with creating a budget. The way I see it, there’s nothing wrong with seeing a mechanic when my car breaks, there’s no shame in scheduling a doctor’s appointment when I’m sick, and I wouldn’t hesitate to turn to a professional nonprofit credit counselor if I can’t manage my debt.

Paying off credit card debt is one of the hardest challenges in all of personal finance, and there are no quick-fix solutions. By realizing how credit cards work, and using all of the available tips and tricks, you can realize both the savings and the satisfaction that comes from eliminating credit card debt as soon as possible.

Let us know how your holiday spending went, Grownups, by leaving a comment below!

Jason Steele is a freelance writer
who contributes to personal finance websites
including CompareCards.com, Credit.com, Wise Bread,
and The Points Guy. 

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