The holidays have come and gone, but for some, holiday debt remains.
You may not even realize how bad the damage is if your credit card bill hasn’t come in yet. Or maybe your debt has been mounting for a while and you’ve simply swept it under the rug.
However dire your situation, 2017 is the perfect time to get your finances back on track — especially since food costs and gas prices are expected to climb even higher this year, according to Craig Alexander, the Conference Board of Canada’s chief economist.
Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, a not-for-profit organization that offers free debt advice, proposes whittling down debt much like you would your waistline after a period of indulgence.
“Shedding some extra holiday weight requires you to eat less. The same logic can apply to your holiday debt management,” he said.
Here’s how the principles of weight loss can help get you from the red to black this year:
1. A budget = your scale
Any personal finance expert will tell you a budget is the most basic and essential step in debt management.
To start the process, you need to see exactly where every dollar is being spent. It’s like stepping on the scale to survey the damage.
When Toronto-based certified financial planner Jason De Thomasis helps his clients with setting a budget, he says “surprises” always come up because most people don’t realize how much money they spend on day-to-day items.
2. Set goals
Once you’ve assessed your financial situation, it’s time to make a plan.
“I find a lot of people think they have a plan, but their plan is [just] setting up an automatic payment,” De Thomasis said, “which is not really any sort of plan. It’s just a payment.”
A more concrete plan would be putting a deadline on paying off your debt, and coming up with specific measures to help you achieve that goal.
Jeanette Brox, a senior financial consultant with Investors Group, once helped a client pay off $45,000 of credit card debt in five years by arranging a low-interest debt consolidation loan, for example.
READ MORE: 5 steps to a financial plan
Each situation is different. And not all debt is equal. High-interest credit cards (that can range from 19 to 28 per cent interest) should be a top priority, Brox says.
“I think the biggest mistake is [only] paying the bank or credit card-required minimums,” De Thomasis added.
“The interest compounding is far more than you’re paying off. So there could be a cycle where you never actually pay off that debt.”
Ideally, people should pay off their entire credit card balance each month. If that’s not possible, pay off as much as you can and never be late with your payments. That will kill your credit rating.
“A poor credit rating will impact your ability to purchase a car, house or arrange for a debt consolidation loan,” Schwartz warned.
3. Trim the fat
Senseless spending is much like senseless eating, Schwartz says .
“The less money you spend, the more you will be able to allocate to your debt.”
Here are some suggestions for areas you could make (even temporary) cuts to:
- Look at your cellphone expenses. Maybe you could scale back on your plan (do you really need voicemail? Isn’t that what caller ID is now for? Or a text message?). For families, bundling services might be the way to go.
- How high is that heating bill? Perhaps it’s time to lower the thermostat and throw on a sweater, or curl up under a blanket.
- If you spend a lot on eating out, consider making your meals at home. Sure, it may take more time but it’ll save you a lot of money in the long run.
- Cut out alcohol. The break will be good for your body and bank account.
- If your family has two vehicles, think about reducing to one and making use of public transit. If you’re not quite ready to sell your car but want to save some cash, you can always put it on parked car insurance which, for a fraction of what regular insurance costs, covers your vehicle for damage or theft. You just can’t drive it.
- Have a child in a number of extra-curricular activities? Sit down and discuss which of them they like the least.
- Make your own cleaning products at home.
READ MORE: 5 easy ways to start saving money at home
4. Track your progress
Some people use fitness trackers to shed pounds. Online tools can also be used to shed debt.
If you’re not super savvy with Excel, you can download a free app. You Need a Budget (YNAB) is one of the many options out there. It helps you craft a budget, set long-term savings goals and even offers online classes on how to handle credit card debt.
For those who prefer to use their desktop, Schwartz recommends Mint.com‘s free-web based application. It lets you link your bank account, then keeps your spending in check by sending an alert to your phone when you get close to your monthly limit.
5. Get a (financial) trainer
“Just like dieters, sometimes you need more help than you’ve anticipated,” said Schwartz.
Thankfully, there are plenty of trained professionals who can help you free of charge.
Financial experts like De Thomasis and Brox don’t charge for initial consultations. Other options include your bank, credit counsellors, as well as fee-for-service financial advisors, who will charge you an hourly rate for their guidance.
6. Don’t go it alone
There’s strength in numbers.
“Grab a friend who’s in debt and get accountable. Make a pact to tackle your debts together,” Schwartz suggested. “You will be responsible to one another.”
It’s similar to having a gym buddy. He or she can encourage you in moments where you are losing sight of your goal.
Schwartz also recommends holding monthly meetings with your family to “discuss ways you can manage your debt together.”
It can be a good learning opportunity for kids, as well.
“Debt can ruin your family life,” said Schwartz. “Don’t let it get that far.”
— With files from Tania Kohut and Nicole Bogart, Global News