WHEN THE PARTY’S OVER

After the holidays, you may have a hangover. However, your hangover may not be alcohol induced. You may open your credit card bills in late January or early February and get a spinning feeling in your head. Here are some black coffee, dry toast and a couple aspirin to help you through the post-holiday, bill opening season.

Open and Review Your Mail

Open all of your mail. Especially the bills. Discounts, rebates, coupons, time-sensitive legal notices and mistakes on your bill, usually come in the mail. If you don’t open and read your mail, you may be missing very important information or deadlines.

For instance, when credit card companies are sued and customers are asked to join the class action lawsuit, or notified of a refund, these must be done in writing. If you don’t open your mail, you could miss the good news right along with the bad.

Prioritize Your Bills

Anything having to do with your essential needs, including housing, food, utilities, car note, childcare must be paid before any other bills. Ask yourself if the bill in question, when unpaid, will leave you and your family in the dark, hungry or on a park bench. Pay those first. Collection agency calls for credit card bills can come daily. However, legal notices about foreclosure and housing court only come in the mail a few times before you lose your home. Small dogs bark incessantly. But the big dog only has to bark once.

Credit Card Bills

After the essentials are taken care of, move on to the credit card bills. If you are the average American household, you have four or more credit card accounts open. When you make a late payment, you may receive a late fee on your bill. However, a late payment can also cause your interest rate to go up on that card and your other cards. With the merger and buyout of many major banks and major department stores, many credit cards that were owned by two or three different banks are now owned by the same bank. Prioritize these payments, as well.

Highest Interest Rate Goes First

Pay off the one with the highest interest rates (“APR”) first. This is the most expensive credit you are using, so you want to pay it off first. Because of changes in the banking law over the past four years (the Credit Card Accountability, Responsibility and Disclosure Act of 2009 “CARD”), your interest rates are prominently displayed on your bills in big tall numbers. The higher interest rate cards are usually the department store or affinity cards. When you signed up, they gave you an incentive gift like some free miles or a teddy bear. However, you can use a major credit card at the same store, usually at a lower interest rate. Consider paying off the higher interest rate cards and closing them. Use your major cards instead. The interest rate is lower and the money is cheaper.

A Word on Transferring Balances

Some cards may offer to absorb the balance of another credit card at a lower interest rate. Please read the fine print on any such deal. The lower interest rate may be an introductory rate. Find out when it ends. Your interest rate may increase if you miss a payment or make a late payment. Everyone makes mistakes. Make sure you find out what the penalty rate is. You don’t want to get caught with the larger balance on a card with an increased or penalty rate. From the frying pan into the fire.

Second Mortgage/ Equity Loan
Some credit card holders opt to take a loan against their homes to pay their credit card debt. Up Side: The interest rate on such a loan will almost certainly be lower than the original credit card interest rate. Down Side: The home is now encumbered by additional debt. This is not the best option for paying credit card debt. However, this would be a decent choice for a family who is committed to making a serious change in their spending habits and need a fresh start.

When You Need Help

Don’t let shame or fear stop you from getting the help you need if things go horribly wrong with your bills. Scam artists posing as “credit repair” companies play on shame and fear to scam people out of whatever money they have left. You are not alone in your debt, many of your family members, neighbors and coworkers are struggling financially. Hold your head up, do your research and get the help you need. You can do a Google search on any credit counseling organization you decide to use. But it’s a good idea to make sure the organization is certified by the National Foundation for Credit Counseling (NFCC), a non-profit organization that monitors and certifies credit counseling organizations.

The Seven Year Itch

Your credit report, much like fine wine, gets better with time. Due to contract law, most bad debt “ages off of” (stops appearing on) your credit report in seven years. Some debt does not age off. Child support, back taxes and student loans don’t go anywhere. You must make arrangements to pay these off. Also bankruptcies and debt where the creditor has gotten a “judgment” against the cardholder, can stay on a credit report much longer.

Order and review your credit reports at least once a year. Its like an annual checkup for your money. If you've had a rough patch in your financial life in the past and you’ve steadily improved since then, that will appear on your credit report. This progress, ie., late payments followed by a series of regular and on time payments, can help prove to potential new creditors that you are back on your feet.

Let’s Be Careful Out There.