Don’t let your holiday debt linger deep into 2013

A wallet-emptying shopping binge and New Year’s debt hangover are mainstays for many consumers.

And now that the holiday bills have arrived, many face the daunting task of whittling down the mountain of often high-interest credit card debt.

Although many cardholders have kept their credit card debt relatively low since 2010, their average debt is expected to grow by roughly 8 percent to $5,446 by the end of this year. That’s the highest level in four years.

That suggests some consumers could end up carrying at least a portion of their 2012 holiday debt, and paying interest on it, well into 2013.

“The worst thing you can do is stick your head in the sand and not begin to change,” says Norma Garcia, manager of the financial services program for Consumers Union, publisher of Consumer Reports.

Here are six tips on how to detox your finances this year.

1. TALLY UP WHAT YOU OWE: First on the debt to-do list is to take stock of the damage. That means reviewing credit card bills, bank statements, and other accounts to determine how much you owe and how that translates into monthly payments.

Experts also recommend getting a copy of your credit report if you haven’t done so in more than a year.

“That way, you’ll know exactly where you are, in terms of what’s being reported to the credit reporting companies,” says Rod Griffin, director of public education for credit reporting firm Experian.

Consumers are entitled to get a credit report from the three nationwide credit reporting companies free of charge every 12 months. Copies can be obtained at AnnualCreditReport.com.

A credit report can help you understand how your debt, and your payment history, will be perceived by potential lenders.

It also underscores the need to bring down card balances, as high balances are viewed as a sign of risk.

2. DRAW UP A PAYMENT PLAN: Paying down credit card debt requires discipline.

One oft-advised strategy for borrowers carrying balances on two or more credit cards is to rank the cards by their interest rates and then make the biggest monthly payment on the card with the highest interest rate. For the rest, only make the minimum monthly payment. The process is repeated once the card with the highest rate is paid off.

Griffin says some borrowers might be better off funneling the biggest payments to the card with the lowest overall balance. That enables a cardholder to pay off a card entirely more quickly.

This can provide a psychological boost and reaffirm that it’s possible to conquer your debt.

Remember this: If you used credit cards to take advantage of holiday sales, you may quickly lose any savings because you’re allowing balances to linger.

3. CONSIDER A BALANCE TRANSFER: For those who don’t have a pile of cash that they can draw upon to pay down their debt, the next best option is to lower the interest charges.

You can ask your credit card issuer to do you the favor, but don’t count on it. A more realistic option is to consolidate your card balances into another card with a lower interest rate.

Many card issuers extend balance transfer offers, with some providing an introductory period of a year or more to pay off the transferred balances at no interest. However, that’s not set in stone.

Banks also will typically charge a fee of 3 percent to 4 percent on the amount transferred.

The average interest rate on balance transfer cards is 12.59 percent, according to CreditCards.com. Worried about taking on more credit cards? Griffin of Experian says credit scores put less emphasis on the number of accounts borrowers have than on how those accounts are used.

4. MAKE A BUDGET, FOLLOW IT: Make a budget of your fixed household expenses, such as your mortgage or rent, utilities, car loan, insurance, and so on. Carve out a realistic amount of money for more variable costs, such as gas, groceries and entertainment.

Once you figure out a monthly plan that allows you to pay down your card debt, even if it means scrimping here and there, stick with it. The key to doing that is to remain on top of expenses.

Computer and mobile phone apps designed for tracking expenses abound. Garcia suggests one way to remove temptation from ill-advised impulse spending is to open a separate bank account without debit card privileges and have a portion of your paycheck directly deposited there. Then, you use that account to pay down your cards.

5. USE CREDIT, DON’T ABUSE IT: The best way to get back on the right financial track is to get in the habit of paying off any charges on cards right away. It helps to reframe one’s understanding of what credit is, Garcia says.

“When you use a credit card, you’re tapping into a deficit — unless you plan to pay for it — rather than a reservoir of savings,” she says. “The person should ask themselves, ‘Can I pay off that balance every month?’ and if I can’t, what’s that going to cost me?”

6. GET HELP: Feeling overwhelmed by debt? Counseling agencies approved by the U.S. Department of Housing and Urban Development offer free credit counseling, advice on making a personal budget and dealing with creditors. They can be found on www.hud.gov .