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by Janet Doyle
If you’re like most Canadians, Christmas is a time for spending. In addition to gifts, there’s travel, holiday parties, Christmas baking, and other expenses that seem to creep up seemingly out of nowhere. Most people don’t have a budget for the holidays, and for those that do it’s easy to go overspend. Even if you are prepared with a budget, unexpected expenses or emergencies during the holidays can be costly.
A survey by Price Waterhouse Cooper showed that Canadians plan to increase their holiday spending 1.9% this year, and 80% plan to use their credit card(s). Many people go into debt over the holidays, making January a tough month for many families. We see a number of people come to us with tightened finances, unable to make ends meet. If you are feeling squeeze during this time, you’re not alone, and there are steps you can take to start re-gaining control. It’s possible to get back on track when you fall behind, whether that’s by tightening your budget or seeing a professional credit counsellor who can provide a complete overview of your options.
If you’re ready to get out of debt after Christmas, you can start with these steps and begin the process of digging yourself out:
1. Determine What you Owe
The first place to start when you are ready to pay down debt is to get a complete assessment of your financial health. This means adding up all of your debts and bills, as well as forecasting any upcoming bills (like taxes). For some people this step can be the hardest; coming to terms with your financial health after a spending spree may show you that you need to make some tough decisions. The good news is that once you have a realistic idea of your situation, you have a number of options to get yourself back on track.
2. Write Down Due Dates
Ensure you have the due dates recorded for each of your bills, so you can properly manage your budget. You may notice that many of your bills are due at the same time, which could create challenges for your cashflow. If you’ve been using your credit card over the holidays the minimum payments will be higher, so ensure you take note of any increases in bills, so you don’t fall short. Ideally you should have a balanced cashflow throughout the month, so if the majority of your bills are due at the same time, look into changing the due dates so all of your bills are easier to manage.
3. Payday and Installment loans
If you have any payday or installment loans, you’ll want to review the contracts to ensure you don’t miss any fees or penalties that could be applied. Many people looking for money during the holidays take out small loans to make ends meet or afford the holidays, but these high interest rate creditors often slip fees into the contract, and many people become caught in a downward cycle of debt if they get behind. Those that are considering a short-term loan should consider this option very carefully; many organizations prey on consumers who are searching for a solution to their debt problem. Unfortunately, these financial companies that offer a solution often cost their clients thousands of dollars, and experts estimate that 25% of bankruptcies in Canada include these types of loans.
4. Pay off High Interest Rates
Review all of your loans and credit card bills to ensure you are aware of the interest rates for each. Once you have a list of all of your debts and the interest rates, you can focus on paying down the higher interest rates first to limit the amount of interest you are charged while you get back on track. Make minimum payments on your other debts, and then once you have paid off the higher interest loan you can apply the payment to the next high interest bill.
5. Cut High Interest Rates
If your credit is in good standing, a debt consolidation loan may be an option to consider. You could potentially qualify for one affordable loan payment negotiated at a lower interest rate than credit card rates. This loan would be used to pay off multiple debts at higher interest rates; saving you money that would otherwise go to paying off interest and creating a simpler payment plan to one creditor. However, the interest on a consolidation loan can still be expensive and may not be affordable, or you may not be eligible for this type of remedy once the full details of your finances have been assessed by lenders.
Another strategy is to transfer the higher balances to a lower interest credit card, known as a balance transfer. These cards typically offer a zero or low introductory interest rate for a specific term, such as 3-12 months, and then are increased to the “normal” interest rate. You’ll need to evaluate the contract to ensure you are aware of the introductory rate, promotional period, any applicable transfer fees, annual fees, and the regular interest rate.
6. Stop Spending!
To make progress towards your debt, you’ll also want to put away your credit cards and start paying with cash to avoid accumulating more debt. By paying with cash, you won’t be adding to your existing debt and paying additional interest on those purchases. You should also evaluate your spending and look for ways you can cut back on your expenses and look for ways to save, such as eating at home more or forgoing your preferred take out coffee. Ideally you should temporarily be spending money only on the basics such as food and gas until your debt becomes more manageable.
7. Return or Sell Unwanted Gifts
If you’ve received something you don’t want or can’t use, consider exchanging it for a credit to go towards your necessary expenses (like groceries or toiletries). If you’ve received gift cards, you can sell them for cash online for a slight discount and put the funds towards your debt free future.
8. Find More Money
To accelerate your progress, consider ways that you can find additional income. This can be in the form of a part-time or casual position or odd job; many organizations offer remote working and casual positions that will easily allow you to make an income in the evening. Be wary of any position that requires you to make an investment up front. This is also a great time to downsize your belongings and sell any unused items you have around your home (January is the perfect time to sell that old gym equipment). Look for ways you can cut back on your bills, such as cutting back on television subscriptions and shopping around for a lower cost cell phone plan or car insurance. Take the savings and apply it to your debt payments.
If you find that you’re still struggling after trying these tips or feel like you’d lost control of your debt, there are options to help you take back control and become debt free. Doyle Salewski offers a free consultation where we assess your finances and provide you with all the options available to you. Meet with one of our directors at one of our 17 office locations in Ontario or by video conferencing if you would prefer to speak 1-on-1 from the convenience of your own home. Call 613-237-5555 or email [email protected] to book your appointment and receive a customized plan for your debt free future.