It’s the New Year and you’re $PENT. The holidays are over, the fun times making memories are beyond us – and now it’s time to face reality because the holiday bill are coming due.
It’s for this reason why many people are stressed this month. It’s not that they January cold is bad enough, the post-holiday hangover is now on the horizon and we have to deal with it.
Where do we go from here? How can you prevent this from happening again? It is a well-known fact, that much of this stress is because we over $PENT, and placed this holiday fun on our credit cards so let’s talk about how we can manage it.
Where do we go from here?
Firstly, don’t panic.
Take control of the situation by collecting all of the data. This includes all of the holiday receipts, and credit card statements when they come in. Once you have all the documentation, grab a cup of coffee and sit at a table and review the documentation.
Review the receipts against the credit card statements. Do they match up? If not, and you notice any errors (sometimes during the holiday’s errors do happen. In fact on a personal note, it happened to me last year – where I was charged twice by the merchant) contact the credit card company to find out the process of getting that corrected.
Next, sit down with your calculator (or I like to input on a spreadsheet) and write down all of the amounts owed. If you have multiple cards, place that down in order of highest balance to lowest. Next, beside each amount and card, place the interest rate being charged by the credit card company. This is important in helping you to determine which credit card to pay down first in the event you have multiple credit cards.
Once you have that amount written down, it’s time to create a plan on how you are going to pay it off. Do you want the holiday debt paid off in 6 months? Maybe 8? Maybe 12 (at the latest). It is not advisable to carry any ‘holiday’ debt into the following year.
From there, you tackle a credit card (generally the highest interest credit card) – and work backwards. Example. If you have $ 1,000 on credit card A, and want to pay it off in 8 months, at a 19.99% interest rate the payments have to be $ 135 a month. This assumes you do not add anymore principle balance to the credit card, and it will cost you $ 76.19 in interest. * An online resource calculator to help you determine the payments, time period and interest being paid – is creditcanada.com . Check it out in helping you understand the total cost of credit. You keep playing around with the numbers until you are comfortable in making this payment to eliminate this debt.
If you are able to set similar targets with all of your holiday credit cards balances (and line of credit), within your budget – bonus! If not, another strategy is the ‘snowball strategy’. Here, you shorten the time period to pay off one debt, than once a credit card (or any other debt is paid off) – you apply the prior payment towards this new debt in eliminating the total debt. Keep repeating until all of the holiday debt (or any debt) is paid off.
Once you have a plan of attack, and comfortable with the monthly payments in eliminating it – you will find some of the stress will ‘disappear!’.
How can you prevent this from happening again?
It can be summed up in one word – budget!
By budgeting your holiday spending, and all of our spending in general – you are able to take control of your personal finances and be in the driver seat. You are able to see where your income is coming in, where your expenses are going out and to plan for the things such as ‘emergencies’ instead of resorting to credit.
A budget is simple to do, and many templates exist to help you out. Some apps for smartphones also exist. I personally like “mint” app, but whatever works for you and your most comfortable is the most important. If you would like a complimentary budget template, on an excel document – don’t hesitate to reach out and I’m happy to provide this to you.
One key variable often overlooked in a budget is when people prepare it. People generally prepare a budget at the end of the month, and through ‘working’ out the numbers – they say “I’m done and it balances”! This is not necessarily the case.
For this reason it is recommended that at least two times a month you should review the budget at minimum (ideally every week, but people are busy). At the first of the month you prepare in your budget the ‘budgeted’ amount. During the month, as things are being $PENT, you keep documentation (ie. receipts). At the end of the month, you cross reference with your budget and create another column called actual spending. From there, you can see if you over$PENT or under$PENT. After this, you will be able to take action from preventing this from happening into the next month.
As you can see, simple strategies and behaviours can be done to prevent you from being $pent. Many of these tips and tricks are not ‘rocket science’, but they do require your dedication and commitment to take control of your personal finances.
To learn more about budgeting, or to have a complimentary conversation in this area, don’t hesitate to reach out with the contact information below.
Have a great January and looking forward to the next blog in February!
This BLOG is written by Ken Krakar from Protect Your Finances. As an independent, preferred broker – I help protect my client’s financial health and wealth. Follow me on Twitter @protectfinances . Like our page on Facebook at “Protect Your Finances”. Connect with me on LinkedIn at Ken Krakar CHS. Please e-mail me too if you have any questions about this, or any other matter as it relates to your personal finances. I can be reached at [email protected] .
E&OE. This blog is for information purposes only, and after consulting with a professional will you be able to determine how it affects your unique situation.
* Source: Credit Canada Debt Solutions. creditcanada.com