Buying gifts can be a gratifying experience, especially when you’ve scored so many good deals. But even the best deals can add up for unsuspecting holiday shoppers. If you’re feeling a familiar feeling of dread when you open your credit card bill or double-check your savings account, it may be time to face the music.
That hangover feeling after the holidays may be familiar for many shoppers, but you probably only take so much comfort in knowing that you’re not alone. If you’re looking for a proverbial aspirin, you can use these holiday debt hangover tips to get back to normal.
Start Tightening the Purse Strings
If you can’t make more money in a post-holiday job, this strategy should always be your first line of defence. Work out how much your minimum payments are and add them to your monthly expenses. Write down every penny you spend and be ruthless when it comes to cutting out unnecessary costs. If your debt and expenses are wildly different from your earnings though, it may be time to take more drastic measures.
Lumping Debt Together
Debt consolidation has become something of a buzzword among credit agencies, but there is a real value that lies beneath the overblown promises. This process puts all of your bills into a financial trash compactor so you can take out a single loan for the full amount of your debt at a reasonable interest rate.
So let’s say you spread all of your Christmas gifts across three credit cards with interest rates of 19.5%, 23%, and 24.75%. You could conceivably take out a larger loan at 18% to give yourself the gift of smaller payments and a more extended payment schedule. You will still need to qualify for the better rate of course, but it’s a reasonable strategy that can save you from a major headache down the road.
This debt relief strategy also eliminates the need to keep track of multiple bills. Having one monthly payment instead of five will make it easier to manage your finances to ensure you’re always paying on time.
Settling Your Debt
Some creditors are happy to take a portion of what they’re owed rather than the whole thing. And while they may not advertise this in a full-page ad, discussing your situation with a creditor is always a possibility. Now is the time to show off your negotiation skills and work out a payment schedule that you can afford.
This approach is more likely to work if you have a large sum of money from which to pull. (And chances are, you wouldn’t be in debt if you had plenty of accumulated savings.) But this technique can work for you though if your bills have already started to mount.
So if you were in debt before starting the Christmas season, you can ask if the creditor would be willing to forgive some of the interest you owe for the chance of putting the matter to rest. Most creditors would prefer to have money in hand than to wonder if this is the month you make a payment. This way, they don’t have to chase after you and you don’t have to duck their calls.
Experts recommend going directly through your creditor if you choose this strategy because debt settlement companies rarely have your best interests at heart.
Find a Trusted Counselor
There are non-profit credit counsellors available that can help Canadians take back their financial freedom by devising a repayment plan that fit your lifestyle. They work to extend the length of your loan over a period of several years, so you’re not forced to choose between dinner and your credit rating. You pay the agency in this case rather than your creditors.
This technique is similar to that of debt consolidation, but a credit counselling agency will provide additional services that you likely can’t perform on your own. For example, they may know of special incentives or offers. Plus, you have the opportunity to develop a relationship with a financial advisor, so you always have a trusted source to turn to if you have questions or concerns.
Go the Legal Route
This strategy to recover from your Christmas debt hangover is similar to that of debt settlement but more formal. A Consumer Proposal can be one of the easiest ways to rescue yourself from an avalanche of bills without cutting too much into your future earnings.
With this option, you work with a Licensed Insolvency Trustee to out a payment plan with your creditor to pay back a portion of your debt. Unlike debt settlement, you can take advantage of this offer if you don’t have accumulated savings. Some Consumer Proposals allow payment plans of up to five years.
The catch with this option is that it can dramatically affect your credit score. However, after five years, your Consumer Proposal will be officially discharged, and your financial rating can begin to recover.
If any of the other options aren’t speaking to you, it may be time to look into personal bankruptcy. A LIT will go through your financial history and help you through the process. On the plus side, personal bankruptcy can provide you with a clean slate. All of your debts will be discharged at the end of the process so that you can start all over again.
The downside is that personal bankruptcy can affect your credit score for up to six years. It’s a significant sacrifice to make if you want to buy a house or a vehicle at a reasonable interest rate.
To recover from your Christmas debt hangover, you may have to think outside the box because it may not be as simple as skipping your morning coffee for a week or two. The good news is that you have plenty of ways to improve your financial health once you know the available options.