With the holidays upon us, ‘tis the season to spend, spend, spend — and many gift-givers will use their credit cards to do so, especially those already in debt. A recent survey found 61% of those who already carry balances on their credit cards are willing to add to their balances during the holiday season.

The tendency can be heightened by special retailer promotions to use or open lines of credit. “Buying becomes emotional and it’s easy to overspend during the holidays,” said Sarah P. Bumgardner, a Relationship Manager with AAFMAA Wealth Management & Trust LLC (AWM&T), a wholly-owned subsidiary of AAFMAA.

That’s unfortunate because credit cards typically have some of the highest interest rates of any type of debt, meaning that the longer you maintain a balance, the more debt you’ll accumulate.

When your credit utilization ratio gets too high, it can lower your credit score. If that happens, then you might get a higher interest rate on a future loan, if you can even qualify for one at all. “Getting close to your credit limit and not paying down debt is a huge red flag to lenders,” Bumgardner said.

Well, the Holidays are Over… Now What?

With the holidays behind you, now is the perfect time to start thinking about how you’ll improve next year. When it comes to holiday spending, Bumgardner advocates having a professional create a detailed financial plan for your family that sets a limit on spending, including what you’ll spend during the next holiday season.

“Ideally, we can sit with Members to review spending from November and December of the previous year to come up with an overall plan that allows for your holiday purchases as well as paying debt while still allocating some of each paycheck into savings and investments.”

5 Ways to Pay Down Credit Cards

Achieving balance is important. But if you’re not able to contribute to savings and investments at this time, it is important to at least to pay down high-interest credit card debt, and have a plan in place so you won’t fall into the same trap again, she said.

There are several options for paying down that debt.

1. Cut expenses or increase income. A financial advisor will go through your spending line by line, item by item to see where you can save. For instance, you might be able to bundle internet and phone services, or car and auto insurance. You also can boost your income with a side hustle or second job. Either way, you can channel those expense savings and new income into paying down your credit cards.
2. Pay more than the minimum each month. By paying more than the minimum balance on your credit cards, you’ll be chipping away at the debt. Just be sure you are paying off cards with higher interest rates first, and not adding new purchases to those accounts or accumulating new debt. 
3. Cash-out refinance. A cash out refinance loan enables you tap into the equity of your home by refinancing. If you have a VA loan you may be able to borrow up to 100% of your home’s appraised value. “But you aren’t required to borrow the full amount,” said Kevin Holton, a 25-year industry veteran and Branch Manager in Wilmington, NC with AAFMAA Mortgage Service LLC. (Learn more)
4. Debt consolidation loan. There are a lot of options out there for unsecured personal loans that can help you consolidate different types of high-interest debt into one monthly payment — but be careful. Typical debt consolidation loan interest rates can range between 5% and 36%! You’ll want to run the numbers by a financial professional to determine how much you’ll actually be saving with a particular consolidation loan. Additionally, if you’re currently serving in certain ranks you might qualify for a $5,000 personal loan from AAFMAA at just 1.5% APR with no credit check — find out how.
5. Balance transfer loan. These loans can help you pay off high-interest credit cards, but be sure to read the fine print. Most will have a transfer fee (3-5% of the total amount transferred) and an annual fee. Plus, if you don’t pay the total expense in the stated time frame, say 18 or 21 months, you’ll be paying interest upwards of 15% on the entire amount transferred.

We’re Here to Help

AAFMAA is the longest-standing, non-profit financial solutions provider exclusively serving the military community with always-affordable life insurance coverage, expert wealth management and trust services, exclusive survivor assistance and customized residential mortgages. With AAFMAA by your side, you are empowered to make your own smart decisions toward achieving your financial goals. This is our only mission and we have helped hundreds of thousands of military families like yours for over 140 years. Visit aafmaa.com and find out all of the ways your family can benefit from AAFMAA Membership.