Getting through Christmas Debt-Free

If you're like many people, a lot of your current credit card bills include Christmas expenses from last year that you're still paying off. Most will be paying off last year's presents well into the middle of this year. One way to keep this from happening down the road is to start saving now, so you have the cash on hand to pay for those gifts outright instead of having to resort to putting them on a credit card. The savings can be substantial as the interest fees on those charges can add up quickly if they're not paid off promptly.

How can you get that far ahead? Well, you can start by making sure that you pay all your bills on time. Each of those late fees of $25, $35 or more can add up to a lot of potential gifts. And that isn't even considering the interest rates. If you have hundreds or thousands of dollars on your credit cards, you must remember how much you're paying in interest. Many credit cards charge 19 percent or even more in interest rates. That means you're paying a lot more on every dollar of purchased gifts than you initially charged. If left long enough you could be adding hundreds of additional dollars extra in interest just to pay off last years gifts. That's money that would be better spent on this year's Holiday season.

So, work diligently to pay off those debts. Do what it takes to clear those old charges. That may mean tightening your belt for a few months to make larger-than-usual payments on your cards. Remember, the faster you pay down your balances, the more money you'll be able to keep in your own pocket by not having to give it to the credit card company as an interest payment.

Once you get your cards paid off, begin saving for this year. If you're fairly responsible and have the will power, you can just put this money aside in your savings account – that's assuming, or course, you'll leave it there and not dip into it from time to time. If you do take a little here or there, be sure to replace it as quickly as possible, or you'll be sadly disappointed at the toll it will take on your available cash come Christmas time.

For many people, it's necessary to open a completely separate account for this purpose. Most banks typically offer some form of 'Christmas Club' savings account, but evaluate and compare them carefully before signing up. Many offer lower interest rates than regular savings accounts, in which case it might be better to simply open a second savings account that you personally earmark for your Christmas money.

While you may still be suffering the repercussions of last year's Christmas spending, the painful bills don’t have to be an annual tradition. With a little extra planning and effort this year, your Christmas can be funded in advance and leave you entering the next New Year debt-free.

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