The holiday glow has long faded, and now you’re left with a pile of credit card bills and a serious debt hangover. Once again you ask yourself, “How did I spend this much money?”You tell yourself it was only a few thousand dollars, but when you add it to your existing debt, the numbers are overwhelming. If you owe more than $25,000 in credit card debt, overdraft or a line of credit, and you’re only making the minimum payments, it could take you 20 years to pay it off, and cost you thousands of dollars in interest. And that’s if you don’t accrue any additional debt.
To get ahead, you need to be proactive and tackle your debt head on. Here are some tips to get your started.
Create a budget
The first step to eliminating debt is to create a realistic budget to determine how much you can allocate every month towards your debt repayment plan. The Financial Consumer Agency of Canada has some useful information and a budget calculator to help you crunch the numbers.
Generate a debt repayment plan
We get it. Debt is stressful, and it’s natural to not want to face it. But you cannot tackle your debt until you take a hard look at exactly what you owe. Are you carrying a balance on multiple credit cards? Do you have a personal loan from a financial institution? A line of credit? Overdraft protection?
Once you’ve compiled a list of everything you owe and the accompanying interest rates, it’s time to prioritize your debts by the amount owed and the interest rate being charged. There are different schools of thought regarding which debt to pay off first. Some financial advisors recommend tackling the largest debt with the highest interest first, because high interest rates will cause you to accrue more debt every month. Others advise that you focus on the smaller debts, and as those smaller amounts are paid in full, you can reallocate funds to pay off the larger debts.
Whatever your repayment strategy, you should strive to make more than the minimum payments on all credit cards and make extra payments whenever you have the opportunity.
If your debts seem overwhelming, consider reaching out to a debt solutions provider. A meeting with one of our certified credit counsellors can equip you with budgeting techniques and debt repayment strategies to alleviate your debt. If you find that your monthly budget does not provide sufficient funds for debt repayment, you may want to consider other options, such as a consolidation loan, a consumer proposal or personal bankruptcy.
Consider a consumer proposal
If you realize that you simply can’t manage your debt as it is, a consumer proposal might be a good option. It gives you the flexibility to negotiate a settlement to pay all or a portion of your unsecured debts, and your monthly payments are based on what you can afford. Instead of making multiple payments to all of your individual creditors, you make one monthly payment to your proposal administrator.
Another benefit of filing a consumer proposal is that it gives you immediate protection against further action from unsecured creditors. Phone calls, collection or legal action, wage garnishments and unencumbered asset seizures are stopped, which can be a huge load off your shoulders.
Quick tips to avoid debt next year
Of course, the best way to deal with debt is to avoid accumulating it altogether. Take charge of your finances and break the spending habits that created the problem in the first place. If you are already dreading the next big holiday, birthday or other special occasion because you associate it with credit card debt, check out our blog post, “5 Tips to Avoid the Holiday Debt Trap.”
It’s understandable to be overwhelmed by holiday debt, and you may feel embarrassed and alone, but the truth is thousands of Canadians struggle with debt, especially after the holidays. Being aware of your spending and setting realistic limits will make for a happier holiday and post-holiday season.
The team of experts at Faber can help you conquer your personal debt and enjoy a fresh financial start. Contact us today for a free, confidential consultation.