Digging Out of Post-Holiday Debt

      If your holiday shopping has left you feeling buried in debt, we brought in expert Rick Emerson to help get us back on track. He is the author of "Zombie Economics: How to Slay Your Bills, Decapitate Debt and Fight the Apocalypse of Financial Doom."

      For more information, check out the Zombie Economics website.

      Q: For those who want to get control of their finances in the new year, what's the single most important thing they can do?

      A: Open that pile of bills on the kitchen counter - and find out what's in there.
      (From Chapter One: "The Zombie on the Back Porch" pages 10-12)
      "The Zombie on the Back Porch", refers a situation in which you hear what sounds like trouble outside your door -scraping, thumps, a low, droning moan- and you don't know what's out there. It could be one zombie, or two, or fifty...or just the wind. But you'll never know if you don't check. You have to know what you're up against. For a lot of people that zombie is the pile of unopened bills. You know how it is: you come home, you check the mail, you see the bills, you cringe, you think, "not now", and you shove everything into a drawer under the microwave. And you have no idea what's in there.
      Could be good news, could be bad, but if it's bad, you don't know how bad...especially after the holidays. And here's the thing: just as a zombie on the porch attracts other zombies, your bills bring interest, and penalties, and late fees. You've got to kill them off, now, and that starts with knowing the situation. You need to set out every unopened bill you have, open them all, look at the most recent bill from every company, and figure out what you're really facing...otherwise, how will you overcome it?

      Q: The holidays leave a lot of people with serious credit card debt. How can folks get a handle on that situation?

      A: The key is ranking your cards, and paying them off in that order.
      (From Chapter Two: "Find All the Weapons; Block All the Windows" pages 41-45)
      If you owe on multiple cards, the first step is to find out the annual percentage rate (APR) on each card. This is usually on your monthly statement.Then rank all the cards in terms of their APR, so you know which has the highest interest rate, second-highest, etc.
      Each month, beginning now, pay off as much of your highest-priority card as possible. Other cards can be given the bare minimumenough to avoid late or penalty feesbut the highest-priority card must be given your full financial attention. Every month. Without fail. Period.
      Once your highest-priority card is completely paid down, move to the card with the second-highest interest rate. Take the amount you were paying every month for card number one and add that to what you pay each month for card number two . . . on top of card number two's minimum monthly payments. Pay this combined amount every month, without fail, until card number two is completely free and clear.
      Continue this process, working your way down the list of credit cards/payments. As you pay off each card, you will not only be freed from its minimum monthly payment, but you will have more money to shoot down the next card on the list.
      This way, every card is paid off faster than the card before it.

      Q: Once their bills have been paid, people sometimes find that there's simply nothing left over. How can they set a little something aside?

      A: Send the money to savings before you even have the chance to spend it. We call this "The Vanishing Fifty".
      (From Chapter Eight: "The Trench" pages 168-169)
      This takes about 25 minutes and can make an astonishing difference. You go online or stop by the bank, and have them set up a brand-new, separate savings account in your name. Even now, most banks will do that for free or for a very small amount. Then you set your primary account to automatically put fifty bucks in this new account every single month. And the secret with this brand-new account? Don't get a checkbook, a debit card, a credit card...anything. Make it so that if you want that money, you have to go to the bank to get it. What happens is, you almost forget that account's there, because you're not using don't even see that fifty bucks. It helps you focus on your remaining budget, and meanwhile, that vanishing fifty keeps multiplying every month. And when it reaches a certain amount? That's your indulgence money.

      Additional Items:

      • Auto-pay, auto-pay, auto-pay. For fixed-amount costs, especially the smaller ones, set them up as automatic payments. This helps you avoid late fees and, if you're like me, it circumvents your own laziness, so you don't come home and find the lights have been turned off.
      • Make yourself accountable to someone. Find someone you trust...maybe someone who knows you fairly well...and arrange to meet with them every week or once a month and talk about your recent financial choices, good, bad, or neutral. You can lie to yourself, but it's amazing how much harder those lies can become when you have to say them out loud, especially to someone you respect.