How to Ease Credit Card Shock

From local goodies to the latest in tech, we love to spoil our friends and family with gifts over the holidays. But inevitably, the eggnog-induced glow disappears and the puzzle-completing euphoria fades, and we’re left to face the music of that dreaded post-holiday credit card statement.

It’s a daunting task, and unfortunately, there’s no quick fix. The good news is you’re not alone—holiday debt is more common than you think.

We reached out to Sahil Raina, assistant professor with the Department of Finance at the School of Business, for his perspective on how to ease new year credit card shock:

Pay more than the minimum amount.

According to Raina, paying off only the minimum amount required on your credit card statement is a pitfall many of us encounter.

“When you pay just the minimum amount, you’re actually increasing the amount of interest you’re paying,” he said, adding that due to the interest charged by many credit card companies, the balance you end up carrying on your statement month-to-month can actually increase.

This means that over time, you end up paying a lot more than you would have had you paid the minimum amount due plus the interest, for example.

But by putting even $10 more per month towards your debt, said Raina, that’s $10 on which you’re not paying interest the following month.

Pay off your higher interest debt first.

Here’s a scenario: you have paid off the interest on all your credit cards for the month and you have an extra $20 in your hand. Should you put that towards the credit card with the higher or lower interest rate?

The answer, said Raina, is the higher one.

“This means you are reducing the amount that you have to pay interest on at a higher percentage in the following month by that $20,” he said.

But when it comes to the interest on your debt, the most important thing you can do is to be informed on what each credit card is asking of you.

“As consumers, this is the type of thing we need to pay attention to,” said Raina. ”Interest rates on credit cards matter—we should be aware of this.”

Keep track of your expenses.

Have you ever looked at your credit card statement after a few weeks and thought to yourself: what is that charge? Or: I don’t remember buying that!

To avoid any surprises—and to help keep yourself disciplined as you pay off your debt—Raina’s advice is to keep a record of your expenses.

“It’s pretty easy to not keep track, and I’m certainly guilty of that,” said Raina.

There are a variety of personal finance applications available online to help you chart your monthly expenses, or you can make use of the free templates available in Google Sheets or Microsoft Word. You can even jot down your expenses in the Notes app on your phone as you make your purchases.

Regardless of your tool of choice, keeping track of your expenses is well worth your time, said Raina.

Limit the number of credit cards.

With credit card companies constantly showering us with new sign-up incentives and spending bonuses, the number of cards in our wallet can add up. Quickly.

Raina said this practice can be detrimental for two reasons:

First, it can be challenging to keep track of your spending habits when you pay for purchases on multiple credit cards.

The second and perhaps more damaging reason is that it can hurt your credit history.

Every time you apply for a new credit card, you undergo a credit check. Too many credit checks in a given time period can be costly to any future borrowing you do.

"Whether it’s a credit card, house loan or car loan, these things are going to become slightly more expensive,” said Raina.

Have a support system in place.

There is no quick fix to paying off your credit card debt, no matter how much we wish that were true. So how can we stay motivated with our payments if we see no end in sight?

Though not for everyone, some people might respond positively to having a buddy system in place, said Raina.

Be it a spouse, sibling or friend, having someone with whom you can check-in each month and celebrate successes can be a fun and rewarding way to keep on track.

“You have to slowly build your way out of debt,” said Raina. “But if you see that other people can climb out of it, you know that you can too.”

Think ahead to next season.

You’ve finally paid off any remaining debt from the holidays, and want to make sure you don’t find yourself in the same situation next season. What can you do?

You may need to consider the cost of the gift itself, said Raina.

Instead of spending money, spend time with your loved ones (providing it’s safe to gather, of course) or make the gift. If you’re a whiz in the kitchen, consider gifting a jar of homemade jam and a fresh loaf of sourdough. Or you can plan a popcorn and movie night.

If buying gifts for friends and family is something you look forward to, spend the year building up a fund to prepare for what you’ll spend over the holidays.

“If you save up heading into December—once you pay off your existing debt—that might reduce your dependence on credit cards to pay for your holiday purchases,” said Raina.

So yes, while tackling your credit card debt may seem like an overwhelming task, it doesn’t have to be. By taking it slow, and following these six tips, you’ll be dancing that well-earned, debt-free jig in no time.