By now, most of us have a pretty good idea of the damage done from all our holiday spending. Like many shopping seasons before it, last year’s spending sprees have left lots of shoppers with a case of a holiday debt hangover. If you’re struggling with paying off extra credit card debt, here are a few tips to help you get started.
Tips for Dealing with Holiday Credit Card Debt
Nothing can stall a jumpstart to your finances like a big credit card bill.
Despite inflation, post-pandemic stresses, and our best efforts to get through the holidays without debt, experts expect that Canadians’ holiday spending increased 31% since 2020. In dollars, that’s an increase from about $1,400 to $1,800. The buy-now-pay-later mentality feels good in the moment but it’s no way to improve your financial health.
Part of the reason why 2021 was an especially big holiday-spending year could be attributed to the COVID-19 pandemic.
Many Canadians weren’t spending cash due to lockdowns and other restrictions, so instead, they relied more heavily on their credit cards. Also, some people shopped as a way to cope with stress, and being at home makes it way too easy to shop online.
Plus, most of us wanted to make up for lost time by making the most of the holidays, and thus, spending more than we normally would. So, a lot of people wound up with a severe case of holiday buyer’s remorse.
But don’t worry—your credit card will recover. Here are a few tips to help make sure last year's spending doesn’t stop this year's financial goals!
1. Know What You’re Spending Your Money On
The first step in any plan to pay off debt is to get a crystal clear idea of your expenses – where is your money going and how much do you have left over to work with? To do this, it’s important to track your income and compare it to your current debts and expenses.
If you don't have a clear idea of your expenses and how they compare to your income, this is where a tool like a budget planner and expense tracker can help. With a comprehensive list of how much money you have and how much you can expect to spend on basic necessities and other bills, it’s easier to establish your debt repayment strategy.
For example, if you find that your income comfortably exceeds your expenses, then you may be able to just start increasing the money you direct towards paying off your credit card balances without much extra effort.
On the other hand, if your expenses for basic necessities and minimum-amount debt payments outstrip your income, then it might be time to look for some free financial debt counselling services.
2. Look for Ways to Minimize Your Expenses
Once you’ve created a list of all the things you’re spending money on, start looking for areas where you can comfortably make a few cuts. Reducing your expenses is crucial for freeing up the cash you need to start paying off holiday debt.
For example, look at your monthly recurring expenses. Which ones can be reduced fairly easily to free up some cash over the next few months?
Cutting out cable and cutting down on streaming services, Uber, and takeout are the typical go-to tips that come to mind. But what about negotiating with your cell phone service provider, internet provider, and/or insurance providers for cheaper packages? Or switching to no-fee bank accounts?
Making cuts to multiple expenses in your budget — even if it's just $10 here, $20 there — can make a big difference in helping you pay off credit card debt over the next few months. And the best part? Once you're done paying off those credit card balances, you can start directing those savings towards other financial goals.
3. Use Shopping Apps to Cut Your Grocery Bill
Another quick win is cutting down on your grocery bill. There's no doubt that we're paying more for groceries. A family of four can expect to pay almost $1,000 extra on their grocery bills in 2022. That means we all have to be more strategic when grocery shopping.
Make a list of what you need, use a shopping app to find the best deals and stores that price-match, and then stick to your list.
Also, keep an eye on how much food you end up throwing away. Most of us simply can't afford to waste food—and it's so sad, even if you do compost.
If you find that a lot of your food ends up spoiling (especially if you live on your own), think about alternatives, like cooking meals you can freeze and use throughout the week. In some cases, looking into a meal kit delivery service might be a cheaper option than buying takeout and groceries that end up spoiling.
4. Use Gift Cards to Limit Spending
Due to lockdowns and supply chain issues, many people opted to buy gift cards for friends and loved ones last year.
If you were given a couple of different gift cards, challenge yourself to only use those gift cards for certain expenses for a month instead of your credit card. For example, if you were given a dining gift card, make that gift card this month's limit for takeout. Try to see how long you can make your gift cards last.
If you received a gift card you really can't use, consider saving it for future regifting. It could save you more than just a few bucks on your credit card down the road.
Using gift cards to control your spending can be an easy way to stick to your budget and debt repayment plan, too.
For example, you can buy yourself a gift card for the monthly amount you've allocated for a specific expense.
So, let's say you've budgeted $20 a month for drinks on the go (i.e., coffee, tea, smoothies, etc.). You purchase a $20 gift card from your favourite spot (i.e., Tim Hortons, Starbucks, Booster Juice, wherever) and you only use that card for the next month whenever you want to purchase a drink on your way somewhere.
Once you've used up the gift card, that's it—you're done spending in that category for the rest of the month.
5. Pick a Debt Repayment Strategy (and Stick with It)
If you have excessive holiday credit card debt spread across multiple cards/accounts, be sure to pick a repayment strategy and hold yourself to it. Two popular debt repayment strategies include the snowball method and the avalanche method. Here’s a quick explanation:
- The Snowball Method. This is a strategy where you prioritize paying off the smallest, easiest-to-repay credit card balances first, while still making your minimum monthly payments on your other debts.
- The Avalanche Method. This is where you prioritize paying off your highest-interest credit card balances first, while only paying the minimums for all your other debts.
Whichever method you choose, it’s important to stick with it.
On a side note, some research indicates that the snowball method tends to be more successful for the average person (largely because of the psychological benefits of seeing quick wins). However, the avalanche method tends to save more money in interest in the long run.
So, if you have a Type A personality, the avalanche method is the way to go. But if it's easier for you to stay motivated by seeing quick wins, the snowball approach might work best for you.
6. Look for Lower-Interest Options
One way to deal with the credit card debt from holiday shopping is to refinance it into a new loan or shift the balance to another card with a lower interest rate, also known as a balance transfer. This can help slow down the accumulation of interest on any outstanding balances from your holiday spending while you work to make payments.
Some introductory credit card offers could help you eliminate interest for a few months. While getting another credit card could impact your credit rating and score, it can give you a chance to pay down your holiday debt just a bit faster.
However, it’s important to keep in mind that once the introductory period is over, the debt will start accumulating interest at a higher rate (one which the card issuer should tell you before you sign the agreement).
It's also crucial to stop using the credit card you transferred the balance from. Otherwise, you'll just be accumulating more debt.
If you have especially good credit, and you have multiple credit cards with multiple large balances, and maybe even a maxed-out line of credit, you might be able to find a prime lender (bank or credit union) willing to offer you a debt consolidation loan with favourable terms—which can help you save money in the long run. However, if your credit isn’t so good, it might be necessary to look for other options, like a debt consolidation program.
7. Don’t Be Afraid to Ask for Help!
We know financial troubles, such as debt, stress people out. And if you’re stressed, it can be really hard to tackle holiday debt all on your own. There are a lot of things to track, staying motivated can be a challenge, and temptation is always around the corner. But, who said you had to get out of debt on your own?
There are organizations, like Credit Canada, that can provide you with free advice and support to help you get out of debt for good.
3 Tips to Avoid Future Debt Hangovers
We’ve discussed some strategies for dealing with any lingering debt you might have from the holidays. Now, what can you do to avoid adding more debt to your credit card balances over the next months? As the saying goes, an ounce of prevention is worth a pound of cure, so here are a couple of suggestions to help you avoid building up more credit card debt as you pay off your holiday debt hangover.
1. Limit Online Shopping and Buy-Now-Pay-Later Offers
I know, online shopping is extremely easy and convenient, which is why it can get you into debt trouble fast, especially as you're trying to pay off a hefty credit card bill. Limiting the number of times you online shop vs. how much you spend can be a better approach to managing your spending.
You should also limit buy-now-pay-later offers. They seem great because they don't typically charge interest, as long as you keep up with your payments. So you can pay off a large purchase in installments, interest-free. But you can run into a few other issues:
- They encourage impulse spending with big-ticket items. Before you might have held off on buying a new fridge or stove because it cost $2,700. But now all of a sudden you think you can afford it because you just see it as $270/month over 10 months.
- They add up fast. Let’s say you bought 3 items via buy-now-pay-later. Instead of an extra couple hundred bucks a month (which you mentally budgeted for when you purchased the items) you’re now paying close to $1,000 extra a month—and you didn’t even realize it as it was happening.
- They’re easy to forget. You don’t always get reminders, and some buy-now-pay-later offers expect one lump sum at the end of 6-12 months, instead of monthly partial payments or installments over a period of time.
2. Save for Gifts All Year Round
Rather than waiting until the last minute to buy important gifts for your friends and family—whether it's a birthday, shower, anniversary, stag, sympathy flowers, you name it—you need to be saving for these expenses every month. You know they're coming, so it's important to budget for these ongoing costs.
Consider transferring some money every month to a separate account for these types of miscellaneous expenditures that always seem to catch us off-guard.
3. Shop with a Prepaid Credit Card
Want to really make sure you won’t go over budget as you pay off your credit card debt? Consider using a prepaid credit card instead of your regular card(s) over the next few months—it’s a lot harder to overspend if you have a hard ceiling on your available funds.
Although using a prepaid credit card won't have any impact on your credit score, good or bad, it can be a great way to avoid racking up more credit card debt as you pay off your holiday debt in the coming months.
Need Help Paying Off Holiday Debt?
If you need help paying off credit card debt, reach out to Credit Canada! Our certified Credit Counsellors have extensive experience in assessing the financial needs of people just like you and finding the best solution for getting them out of debt. Call 1.800.267.2272 to get started.