Your Money Adviser: After Burst of Holiday Spending, a Plan for a ‘Frugal February’

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It’s bitterly cold, and holiday bills have drained your bank account. Time for “Frugal February,” when splurging on restaurant meals is out and saving money by dining on home-cooked fare is in.

A prime reason to observe Frugal February, personal finance experts say, is that consumers tend to overspend during the December holidays and need time for their finances to catch up.

Casey Finn, a blogger in Chicago, said she and her husband, Michael, had adopted the tradition of belt-tightening in February several years ago, when they were engaged and worried about paying for a honeymoon trip. It worked so well — they saved a four-figure sum — that they kept it up and now share their penny-pinching activities online.

February works well for a financial reboot for many reasons, said Ms. Finn, one of the writers of the DIY Playbook. Because February has just 28 days, any feeling of deprivation is relatively short-lived. And it is, of course, quite cold in many parts of the country (it was a bone-chilling minus 24 degrees in Chicago on Wednesday), so people often prefer to stay home anyway.

Cutting back on nonessential spending in February can help people pay down credit card balances or replenish savings. “I’m a big fan of not buying things we don’t need,” said Lynn Ballou, a certified financial planner and “ambassador” for the Certified Financial Planners Board of Standards.

Credit card debt has been mushrooming, and that trend continued in November, when revolving debt — mostly credit card debt — increased by 5.5 percent to $1.042 trillion, according to the latest data from the Federal Reserve. (Statistics for December are scheduled to be reported in February.)

Many credit card users carry a balance on their cards from month to month, according to the American Bankers Association. That means they’re probably paying double-digit interest rates: The average credit card rate is more than 14 percent, according to the website CompareCards, and the average rate for new card offers is nearly 17 percent.

The heavy use of credit during good economic times suggests that consumers aren’t putting away extra cash to build up emergency funds for when the things slow down, said Matt Schulz, chief industry analyst at CompareCards.

“Americans need to focus on paying down their credit cards” and other debt in 2019, he said.

The notion of cutting back on spending during the second month of the year has been around for a while. Now, the ability to share February savings strategies with others via social media can help engage people in the effort, said Kimberly Palmer, a personal finance expert with the website NerdWallet.

“It’s fun, rather than a struggle,” she said.

Ms. Finn said that while cutting back on nonessentials might sound dull, “it’s all about getting creative.” Last year, the Winter Olympics were on television in February, so the couple watched at home and played games like “countertop curling,” using ice cubes.

Ms. Finn and her husband enjoy meeting friends for drinks, but the cost of such outings can quickly add up. So in February, she said, instead of meeting a friend for a glass of wine after work, she may propose heading to a the gym. They can catch up while burning calories instead of cash.

The month can also be a time to rediscover entertainment options in your home, Ms. Finn said, whether they are movies, books or board games. “We use the time to appreciate what we already have,” she said.

Here are some questions and answers about a post-holiday financial reboot:

Does transferring a credit card balance to a zero-rate card make sense?

If you have good credit, you can consider transferring your balance to a new card with an introductory zero percent interest offer and pay the bill off over time — sometimes, a year or longer. Look for a card with no or low transfer fees, and be sure you can pay off the balance in the allotted time. Otherwise, you’ll end up paying stiff rates again, when the zero percent period ends.

Another option, if you have a record of on-time payments with your existing card, is to contact its issuer and see if you can negotiate a lower interest rate, said Bruce McClary, a spokesman for the National Foundation for Credit Counseling.

Nick Holeman, a certified financial planner with the online financial adviser Betterment, suggests considering the larger picture when paying off card debt. After paying at least the minimum amount due on your cards, he said, you should next contribute enough to your 401(k), if you have one, to get your employer’s matching contribution, if offered. Then, he said, focus on paying off any high-interest debt — generally, anything over 6 percent, including remaining credit card debt.

What’s the best approach to paying down credit card debt?

One popular strategy is to pay off the card with the smallest balance first, to achieve results quickly and build momentum. Another approach, which Ms. Palmer of NerdWallet suggests, is paying off the cards with the highest interest rates first, since that saves the most money.

What if I’m planning to use my tax refund to pay down bills?

Tax refunds often provide a lump sum that consumers can use to pay down debt. This year, there’s concern that refunds may be delayed as a result of the government shutdown, which ended just before tax-filing season. Mandi Matlock, a lawyer and tax expert affiliated with the National Consumer Law Center, cautions consumers against taking on new obligations or making big purchases until they have their refund in hand.

Some for-profit tax preparers are promoting special loans to tide filers over, but be sure you understand the terms being offered, she warned. In some cases, the loans carry hefty interest rates, which will eat into your refund.

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