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6 ways NOT to pay off holiday credit card debt

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If you're suffering from a case of post-holiday credit card bill guilt, you're not alone. While making good on your resolution to pay down your debt is a terrific goal, you want to make sure you do so in a way that actually improves your overall financial status. In other words, think twice before resorting to these sketchy debt pay-off plans:

1. Dipping into retirement savings
There are two ways people tap retirement funds that don't serve their long-term interests, explains Kelley Long, a CPA, financial planner and spokeswoman for 360 Degrees of Financial Literacy. "The first way is through a 401(k) loan," she says. "Not only are you sacrificing growth in your retirement funds while you pay off the loan, but if you leave your job before the loan is paid back, you'll owe the entire balance immediately -- and you can't pay it back with a credit card."

The other unwise decision is to withdraw from your individual retirement account. The 10 percent early withdrawal penalty alone can end up costing more than any credit card interest.

6 ways NOT to pay off credit card debt

Better move: Take money out of savings
Interest rates on savings accounts and short-term investments are still low, so "borrowing" from yourself and replenishing the account over time can help repair the damage if you've overspent during the holidays, says Kasey C. Gahler, a Texas-based certified financial planner. "Just don't bring your savings down to zero," he warns, since you should try to keep a healthy emergency fund intact. He recommends socking away three to six months' worth of living expenses -- or even more if you're working in a field with high layoff potential -- so you don't go deeper into debt because of unexpected bills or loss of income.

2. Using a home equity line of credit
Low interest rates can make borrowing against your house via a home equity line of credit seem attractive -- especially since the loan interest is usually tax deductible. But using this tactic can be tricky. "You're paying for debt with different debt," says Gahler. "The issue is not necessarily what the interest rate is, but that you're playing a shell game."

Better move: Increase your earnings
Instead of moving your debt around, make a concerted effort to pay it off faster. "Picking up a side job to make some extra money or volunteering for some overtime can help you pay those expenses off as quickly as possible," says Gahler.

You can increase your take-home pay by increasing your allowances temporarily -- as long as you usually get a tax refund. This will give you more disposable income to put toward paying off those holiday bills quickly.

-- Paula Langguth Ryan
Author, "Bounce Back from Bankruptcy"

3. Taking out a payday loan
Payday loans are essentially very high-interest loans that provide an advance on your paycheck, so be sure to read the fine print, says Long. "These loans come with big fees, and you'll end up paying more in the long run than if you just waited until you're paid to pay off the credit card," she adds.

Better move: Make adjustments to your paycheck
There are ways to alter how much income tax you pay on a short-term basis. "You can increase your take-home pay by increasing your allowances temporarily -- as long as you usually get a tax refund," says Paula Langguth Ryan, author of "Bounce Back from Bankruptcy." "This will give you more disposable income to put toward paying off those holiday bills quickly." In a similar vein, if you expect a tax refund, you could file your return early so you can get the money to help accelerate your payoff plan.

4. Paying off your cards without a plan
If you owe a balance on more than one account, choosing an amount each month and divvying it up equally among accounts is not advisable, says Gahler. The same goes for paying just the minimum amount due on your accounts. "It will be hard to get out of debt for the long term that way," he says.

Better move: Focus on the highest interest rate card first
"You want to have a laser focus on the highest interest rate first. Once that is paid off, go to the next highest rate," says Gahler. The idea is that you want to rid yourself of the debt that's costing you the most as soon as possible. Just be sure to maintain on-time minimum payments on your other accounts. Of course, if you have a small balance that's easy to pay off, go for it, so you can enjoy the satisfaction of crossing that one account off your list, says Gahler.

5. Transferring balances
Using balance transfers can be an efficient way to pay off a debt using a lower or zero interest rate card. The danger lies in the limited promotional period. People often end up using the new card for additional spending without paying off the original balance before the introductory period expires. "Not only do they transfer the old balance, but they accrue even more," says Long. And, adds Gahler, with every new account you open, your credit score will take a temporary hit.

Better move: Use transfers sparingly, and crunch the numbers first
You may receive a low promotional interest rate on a new balance transfer card, but don't forget that you'll also pay a fee, which is usually 3 percent to 5 percent of the amount you transfer. "This fee is often more than the amount of interest you'll save by transferring," says Long, so use a balance transfer calculator to see if it's worth it. If it makes financial sense to go this route, stay disciplined with your monthly payments, and circle your "Debt Free Date" on the calendar to stay motivated.

6. Borrowing from family
Relatives are preferable to some other lenders, but there are still caveats. Even if a family member offers you a loan without interest, it can make for awkward encounters if you don't pay it back in a timely manner.

Better move: Save for the holidays all year long
"Take a couple of minutes to go through what you spent this past holiday season, and tally it up. Then divide that total by the remaining months of the year, and try to build it into your budget to put that amount away each month," says Gahler. By December, you'll have a nice amount set aside for cash-only holiday spending.

Ultimately, there isn't a quick fix for getting out of debt, which is why it's important to treat your financial goals more seriously than a fleeting resolution, says Ryan. "Focus on a plan that has longer-term benefits for you, which is getting out of debt, and not relying on credit anymore."

See related: Don't use 401(k) to pay off credit card debt, Using personal loans to pay off credit card debt, Is it possible to pay off debt TOO quickly?

Updated: January 14, 2014


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