Christmas celebrating followed by 'debt hangover'

NEW YORK -- Many people feel great when they're buying piles of gifts for relatives and friends at Christmas, but they can be overwhelmed when that blizzard of credit card bills arrives in the new year.

Credit counselors call it the "debt hangover."

"We often see a rush of people in January and February," said Sandra Shore, a senior counselor with Novadebt, a not-for-profit credit counseling organization based in Freehold, N.J.

Some, she said, have greatly underestimated how much they've spent for the holidays and are shocked when the bills come in. For others, a lack of planning means that Christmas is like any other "unexpected" event -- say a big hospital bill or a necessary car repair -- that can skew their budgets.

'You name it, I bought it'

Shirley Gilbert of Waterloo, Ill., isn't exactly sure why, but she says she got "totally carried away" buying presents during the Christmas season in 2005.

"I bought all kinds of stuff -- you name it, I bought it -- for my daughters, for my grandchildren, for my friends," Gilbert said. "I wanted a good Christmas for them. I figured I'd pay the cards off later."

But Gilbert, who is 62 and living on Social Security and disability benefits, found she couldn't deal with the more than $7,000 she accumulated on her cards -- or with the phone calls from bill collectors. With the help of Novadebt counseling, she's been whittling down the balance since last summer, she said.

"This Christmas, I bought what I could afford and that was it," Gilbert said. "Everyone understood."

Sacha Millstone, a senior vice president at the Millstone Evans Group in Boulder, Colo., said that although some consumers feel the pain of overwhelming credit card bills in January and February, it's often a symptom of a deeper problem.

"I believe that many people who overspend at the holidays overspend all the time," she said. "They maybe do it a little bit more at the holidays."

As a result, Millstone, whose company is affiliated with Raymond James & Associates Inc. financial advisers, believes consumers who are in credit card trouble need to work on a long-term solution.

"Start by looking back at the past year to determine what you actually spent," she said. "Next, create a spending plan for all of 2007."

The plan will be more realistic if the consumer can do projections based on actual spending in the previous year, Millstone pointed out.

Once this has been done, it's easier for most people to identify where they're overspending and where they can find "extra" money to pay down bills, she said.

"Let's say you discover you're spending $8,000 a year on clothes," Millstone said. "You have to ask, 'Is that a priority for us?' If not, maybe you're just doing it out of habit or not thinking about it at all."

Shore, the Novadebt counselor, said many people have to come to terms with what is causing their debt problems, which typically is spending more than they take in.

"Classically, someone will say, I lost my job," she said. "Then you ask, when was that, and the answer is 'two months ago.' And they're collecting unemployment insurance. But they have $40,000 in credit card debt. That obviously started happening more than two months ago."

She believes people need to track their spending for a while because it can show where the money actually is going.

Next, people need to make a chart of their debts with the monthly amounts due, interest rates and totals. The they have to begin paying more than the minimum to get the balances to start dropping. But, she added, they also have to be realistic.

"If you make too strict -- 'I'll never go out to eat again' -- you're not going to be able to stick to it. You need to give yourself some leeway."