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It’s the Worst Part of the Post-Holiday Season

(ARA) – No, not the New Year’s Day hangover or the day after college football’s bowl season ends. It’s the day in January when the credit card bill containing all your holiday shopping expenses arrives in the mail.

Consumers spent an average $800 on holiday gifts this year and many charged it to credit cards. In fact, according to Consumers Reports, consumers charged more than $63 billion in gifts this season. That’s part of the reason why the average American carries $9,000 in credit card debt.

Paying off that debt can be difficult enough when it carries a double-digit interest rate. If you can only afford the minimum payment, it could take years to eliminate that debt. And that’s presuming you cut up or lock away those cards for emergency purposes only starting today.

So what can you do? First you should recognize that credit cards are often the problem, not the solution. The interest rates are very high and the deeper into debt you get, the harder it is to dig out.

One solution to consider is tapping your home’s equity to get out from under that burden. There is almost $9 trillion in available home equity in America, and it can be used to pay off high interest, non-deductible debt such as credit cards. Also, consider that right now long-term interest rates are near their lowest point in 40 years, hovering in the six to seven percent range. Again, compare that to the 17 to 20 percent interest rate you are likely paying on your credit cards.

Determine what you’ll need to pay off the credit cards and what you’ll need for upcoming major expenses. Then evaluate whether a cash-out refinance, home equity loan or home equity line of credit (HELOC) best suits your needs.

Another benefit of tapping your equity to pay off credit card debt is the interest may be deductible, unlike interest paid on credit cards. You should consult with your tax advisor to find out, however.

Working with a reputable lender, such as Quicken Loans can help you decide what the best loan program is for your individual situation. Quicken Loans is the largest online lender in the nation and their Web site, www.QuickenLoans.com, has lots of useful information about various loan programs, as well as tips on how to reduce debt and better manage your budget.

Once you pay off those credit cards remember that they are best used for emergencies and not for everyday spending. Use the cash you free up each month to fully fund investments, such as a 401(k), or save for a rainy day. If you return to lavish spending habits, you may quickly find yourself back in the same predicament.

Courtesy of ARA Content