The holidays can be a stressful time. There’s tremendous pressure to make plans with everyone in your family, find the perfect gifts for your loved ones, get your work done on time for the holidays, and survive holiday travel. Worst of all is the pressure to spend.
When we’re stressed, we’re more inclined to make poor financial decisions and spend impulsively. Stress distorts the way we see a financial decision. Our brains begin to overestimate the positive side of a decision and downplay the negative consequences – such as paying back debt later.
It can be really tough to see the full extent of your spending come January, but there are ways to handle the extra holiday debt and even turn your broader financial situation around, whatever it looked like before the holidays. These strategies can help you recover from post-holiday debt and tackle debt problems that extend beyond seasonal overspending.
#1 Review Your Total Debts
Look over your credit card statements and see how much extra debt you added to your credit cards over the holidays. Once you have the total picture, you can use our debt calculator to figure out how long you will need to pay it all off or how much you need to make in monthly payments to repay it.
If you have already been carrying over debt, holiday overspending can be a tipping point. A new analysis of debt in Canada found that only around 47-58% Canadians pay the full balance on their credit cards each month.
#2 Pay the Card with the Highest Interest Rates First
Organize your debts according to interest rates, and pay those debts with the highest rates first. Whether it’s a credit card, line of credit, or payday loan, put any available extra income toward paying it back.
Paying back debts with the highest interest rate first will save you money, because it’s the most expensive debt to carry over. Once it’s paid off completely, it will free up more money that you can devote to paying back other, lower-interest cards. It will be cheaper and faster to get out of debt.
#3 Pay More than Minimum
The same study mentioned above found that a surprising 39% of Canadians were uncertain about the benefits of paying more than the minimum payment. There are several reasons you should always make more than minimum payments:
- You get out of debt sooner;
- Interest accumulates on less debt, so you save money long-term;
- Paying your debts in full looks better on your credit history.
Making only minimum payments will lead to your debt becoming more expensive and even get out of control. For example, if you owed $5,000 at a 19.9% interest rate, and your minimum payment was 3% of your balance (the average is 1-3%), your first monthly payment would be $150, and it would take you 219 months to pay that debt back, assuming you made no extra charges. In total, that $5,000 debt would cost you over $10,000, twice what you originally spent. Half of what you pay goes to interest alone; you get nothing for it. It’s like agreeing to pay double for everything you buy on your credit card.
#4 Stop Adding New Debt
One crucial thing you need to do before you can start paying back debt is to stop borrowing more. That can be a challenge if you’re not used to restricting your spending. If you’re used to carrying over a credit card balance, making progress can feel like an opportunity to reward yourself.
Identify your spending triggers, such as justifying overspending on an item more expensive than the one you initially intended to buy because it’s on sale. Stick to your budget and what you know you can afford. It can be hard to resist during the holidays because retailers are trying their hardest to coax you into spending more.
#5 Sell What You Don’t Need or Make Returns
After the holidays, see if there are things you no longer need and can sell, especially anything that has been replaced thanks to a Christmas gift. Sell old electronics, go through the closet, and look through the garage.
It’s also fine to return gifts, especially duplicates, things you already have, or things you just won’t use. Don’t neglect your financial health out of a sense of obligation.
#6 Dedicate New Income to Debt
While the holidays can be an expensive time of year, the end of the year and start of a new one can also bring fresh income. Cost of living raises, holiday bonuses, and tax refunds can all put more money into your pocket.
If you’re struggling to pay back debt, that’s where you should put any new funds. Whether it’s a one-time payment dedicating your bonus or your tax return to a credit card bill, or living without your raise until your debts are paid off, it’s a great way to make progress on debt.
#7 Find Debt Relief
In some cases, all the tips, strategies, and financial restraint in the world aren’t enough to get you debt free. If you simply cannot afford to pay back your debts, you are likely insolvent and could qualify for debt relief such as a consumer proposal or bankruptcy.
Overspending over the holidays isn’t likely to put you into insolvency on its own, but compounded with other financial challenges, it can tip you over the edge. If you’re worried about not being able to ever catch up with your debts, visit one of our locations in Victoria, Nanaimo, or Courtenay/Comox. Your initial consultation is free. We will assess your financial situation and present you with your available options. The aim of our initial assessment is to help you understand your options for eliminating debt.
At Debt Help BC, we’ve been helping with consumer proposals, credit counselling, and bankruptcy on Vancouver Island for over 20 years. You don’t have to live in debt forever. There may be an easier way to eliminate your debt and start over.