The holiday season is officially over. There are no more parties to attend, cookies to bake or gifts to wrap. However, just because the holiday cheer might be over, it doesn’t necessarily mean you are off the hook. There’s a new visitor coming to town: your post-holiday credit card balance. And, just like children who fear getting a lump of coal in their stockings on Christmas morning, adults across Canada are fearing their mid-January credit card statements arriving in their mailboxes.
If your credit card statement made the naughty list this year, don’t worry you’re not alone. According to a recent consumer survey by LowestRates.ca, 63 percent of Canadians expected to use their credit cards to pay for gifts this past holiday season. Once you add into consideration travel expenses, food, decorations and festive activities, holiday costs can add up and make a hefty contribution to the already high $4,000 of credit card debt owed by the average Canadian (TransUnion Canada, 2018).
Credit card debt can add up quickly, and with some of the highest interest rates around, it’s a good idea to pay off your holiday credit card payments before it costs you more than what you initially paid. If tackling your holiday debt is one of your New Year’s resolutions, let us be your financial personal trainer and follow our tips below!
Tip #1: Face the Facts
The first step to paying off your holiday credit card debt is acceptance. Accept the fact that at the end of the day you made the decision to use credit cards to pay for your holiday expenses and accept that perhaps you didn’t budget as well as you thought. This is nothing to be ashamed of. Canadians have a history of overspending over the holidays and over half don’t save over the year to support the added expenses (CPA Canada, 2018).
The purpose of this stage is for you to reflect on why and how this happened. If the amount of debt is reasonable and can be paid off in a few payments you will have a different debt repayment plan than if the amount of debt only added to the already large amount you owe. Take this time to figure out if you need to change some financial habits, or if it is a simple as budgeting better next year.
Tip #2: Aim High Then Low
When it comes to repaying your holiday debt, it is best to pay off your cards with the highest interest rate first. If you used multiple credit cards over the holiday season, rank them highest to lowest based on their interest rates. This method will save you the most money by reducing the overall interest being paid towards your credit cards in the future.
Tip #3: Take a Break from Credit
If you can make it work, a great way to help pay off your credit card debt is to stop using your card. Taking a break from using credit will help get rid of the sense of ease and accessibility that credit cards offer. If you are using your own money to pay for an item, you will think about the purchase longer than if it was going on a credit card. If you need to make purchases online, try using prepaid gift cards or ask your bank if your debit card works for online payments. If you pay bills with your credit card, check to see if direct withdrawal from your savings account is a payment option.
We don’t recommend doing this forever, as maintaining a healthy relationship with credit cards can establish good credit. However, giving yourself a few weeks where you don’t rely on credit can help you focus on your spending habits and save a few extra dollars along the way.
Tip #4: Use your Christmas Cash to Pay Down Debt
While we normally write about Christmastime being a time when we spend money, it can also be a time when we receive it. Whether you earned a holiday bonus from work or were given a cheque or cash as a gift, think about using these funds to pay off what you spent over the holidays, or use it to pay down your debt. If you received gift cards for places where you frequently spend money (e.g., the grocery store, the gas station, the drug store), also try to put the money you saved towards your credit card bills.
Christmas cash tends to be used to treat yourself or your family. While using it towards debt may not give you the instant gratification you were hoping for, it will help make things easier on your wallet and budget down the road.
For many January is a stressful time financially, but with some solid planning, commitment to your budget and determination it doesn’t have to be. However, for some, their holiday debt is just the tip of the iceberg. If your credit card debt is becoming overwhelming or you’re using one card to pay the minimum monthly payment of another, it may be time to seek help. By booking a free, confidential consultation with one of our Licensed Insolvency Trustees, we will be able to walk you through your credit card debt and explain what debt relief options may be available to you.