It’s that time of the year again. Presents, packages and holiday cards in your mailbox are replaced with credit card statements. This is the time when you realize that maybe you overspent when you bought those light-up socks for all your friends. Or perhaps you treated yourself one too many times when shopping for others, and now you have to face the music. Luckily, we have some tips to make things easier for you.
Which debts cost the most?
If you got a little tap-happy with your credit cards this holiday season, line up your debts and take note of which ones are charging you the most interest.
Best practices say you should pay down the debt with the highest interest rate first since it will cost you the most in the long run. While we’re all for that, you might also feel a sense of relief and accomplishment by paying off some low-hanging fruit at the same time and feel encouraged to put more towards your heftier debts. Whichever approach you choose, make sure you’re always paying at least the minimums on your other accounts so your credit score isn’t negatively affected.
Additionally, take another look at your credit card interest rates. If your interest rate is around 20%, there may be an opportunity for you to save here. Give your credit card company a call and see if they have an option to lower your interest rate. If there’s a cost associated with the change, it might still save you money in the long run.
Trim down your budget
Now that you know what order you’re going to pay things in, find some wiggle room in your budget to do it. Could you forgo buying lunch at work? Or say no to your friends for a night out? Maybe it’s giving up the $5 coffee every day. This is a good time to re-evaluate your budget.
There’s nothing wrong with being a little frugal, especially when it means you can crush your debt repayment goal. In addition to narrowing in on your budget, try to find other ways you can save money during your day-to-day. One way to do this is to do a quick Google search for coupons before you buy something. Or instead of buying gifts for friends’ birthdays, you can make something instead.
Set up an automatic transfer
After you’ve set your budget, you’ll know what you have to work with. Set yourself up for success by scheduling an automatic bill payment to your credit card. Instead of throwing money onto your card when you feel like it, setting up an automatic transfer means you don’t even have to think about it.
Just figure out how much you owe and divide that number by how many months you want to pay it off in. Remember, the quicker you pay it off, the less money you pay in interest. And no one wants to pay interest. The key with taking this approach is to treat your credit card as a loan. Try not to use it for anything beyond your preauthorized bills that run through it. The quicker the balance goes down, the sooner you can move on to the next debt.
Save now for next holiday season
Save yourself the hassle next year and go through the list of gifts you bought this year. Tally up how much you spent on the holidays to get a realistic picture of how much it all cost you.
Once you know how much you spent, divide it up by 12 and put that money aside each month. Rather than coughing up $1000 in less than a month, if you put away $42 per paycheque it would add up to $1008 over the course of a year.
Or, make it even easier on yourself and your family by simply spending less this December. Experiences and quality time are way more memorable anyway.
If you need help from the experts or just a quick review of your budget, give us a shout.