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From Credit Cards to Christmas Debt, Which Bills to Pay First?

Credit card bills & debts, which to pay first depends on your budget, interest rates, and motivation.By Carmen Chai

By now Christmas credit card bills have arrived, and the holiday debt hangover has sunken in – after the New Year, you may be looking at lengthy credit card statements and savings accounts that have taken a hit. So which bills do you pay first and how do you pay off debt after the holiday season?

Sixty per cent of Canadians were willing to go into debt to make purchases over the holidays, according to a November 2018 Manulife poll. Three in 10 of those polled even said they often regretted how much they spent, most of which ends up on credit, according to the results.

Does this sound all too familiar? If you fall into this category, don’t let the holiday debt hangover linger. Here’s how you can take control of your finances, wipe the Christmas debt clean, and forge ahead for a financially healthy year.

Assess the Damage

As difficult as it may be, you need to tally up all of the debt your accumulated from the holiday season, from the Christmas party prep, the stocking stuffers and gifts, and the Boxing Day shopping deals. This means opening your credit card and bank statements, calculating how much debt you owe, accounting for which debts have higher interest rates, and noting due dates for each account.

You should have a final sum – a figure that represents how much you owe from the holiday season or, perhaps, how much debt you owe in total. With this number, you’ll know how much you need to pay off.

Balance Income and Expenses

Now that you have a total sum of debt to tackle, and a determined mind only weeks into the new year, use this newfound energy to build a realistic budget, balancing your income with your expenses and debt repayments.

Budgeting is crucial here – you want to stop the bleeding of your savings and pay back what you owe. Create categories in your budget, including fixed expenses (e.g. rent, transportation, groceries, and bills), variable expenses (e.g. eating out, entertainment, or shopping), and even expenses you need to save up for (e.g. gifts, clothing, health expenses, annual subscriptions and memberships, or vehicle maintenance).

Stick to a Budget

It's hard to break old habits, especially those forged just weeks ago over the Christmas break. If it’s helpful to you, try out a cash only diet. Withdraw enough to cover what’s needed in your budget and stash the allocated amounts in designated envelopes for groceries, eating out, and other categories. You’ll feel the money slipping through your fingers, and once it’s run out, with a cash only diet, you can’t rely on credit.

You can also get crafty by relying on gift certificates, redeeming points and rewards on your credit cards, and doing what you can to offset expenses during this month. Find link-minded, frugal friends to help you stick to your resolve.

Tackle the Debt

Now it’s time to face the music. Create a debt repayment plan with a realistic amount being repaid to your outstanding debts. In this case, there are a few things to keep in mind, such as addressing debts with the highest interest rates first. 

Some people prefer to spread the wealth, applying a bit of their debt repayments across handfuls of accounts while others like the momentum of paying off entire cards (while maintaining minimum payments on the rest), so they have one less account to worry about. 

Snowball versus Avalanche, Which Is Better?

If you’re concerned you may not stay on top of due dates, automate minimum payments at the very least. And don’t be afraid to make more than one payment a month – some personal finance experts recommend making payments a few times throughout the month. Remember, every last bit adds up.

Accelerate Your Debt Payments

Outline Your Goals and Action Plan

Now that you have a budget and a thorough understanding of your holiday debt, you can carve out goals for the year ahead. This includes long-term goals, such as saving for a down payment on a house, paying off your car, or wiping out credit card debt within the next three years, to short-term goals, such as saving for a holiday or creating an emergency savings fund.

How to Save Money

Your goals need to be specific – don’t just say you want to save up for a trip; pick a total amount and a monthly amount you’ll allocate your savings to each month to get you to your goal. Short-term and long-term goals can be worked into your budget.

Best Practices for Saving Everyone Can Do

Take Stock of Lessons Learned

Each year, we turn into spendthrifts once the holidays creep around the corner only to be left in unnecessary debt. It’s worthwhile to learn from previous mistakes. Ask yourself:

  • How did I get into this much debt over the Christmas season?
  • What could I have done differently to stop this from happening?
  • How do I ensure I don’t repeat the same mistakes next year?

You could look into using rewards points for holiday travel to see family, prepare food at home instead of eating out with friends, or get into the habit of creating a Christmas spending fund so you aren’t going into the red each December.

Seek Non-Profit Credit Counselling Help to Resolve a Holiday Debt Hangover 

In some instances, the holiday debt hangover is a tell-tale warning sign of overall financial problems or a looming debt crisis. If you feel like you’re drowning in debt and fending for yourself alone, consider seeking professional help. Canadians have turned to non-profit Credit Counsellors for help to better understand their options, from consolidating credit card debt, to starting a debt management program, building their own debt repayment and budgeting plan, or looking for tips and tricks to make managing money easier. Find out more about what help from a not-for-profit credit counselling agency in your area looks like now. The sooner you do, the more options you’ll likely have available to get your money and debt on track. It’s free, neutral and unbiased information, resources and advice so that you can make an informed decision about what will help you. All you’ve got to lose is your debt!