Top Ten Ways To Get Out Of Debt After The Holidays

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Get out of Debt

Using Your Home Equity To Consolidate Holiday Debt

While the holidays may be long gone, the bills are coming in now and all that online holiday shopping may have left a serious dent in your bank account, and struggling with credit card debt. To make matters even more complicated, 2020 was a challenging year, with many having lost their jobs and having limited means because of the Covid-19 pandemic. A Manulife survey revealed that 68% of those who reported having ‘a lot of debt’ said they knew they were going to overspend during the holidays, despite digging themselves even deeper into debt.

According to a recent survey by PWC, despite being caught in a worldwide pandemic, Canadian millennials take up the biggest proportion of holiday spending for their family members. Those not wanting to shop at traditional brick and mortar stores (Ontario’s province wide December, January, and February lockdown), online shopping outweighed in-store shopping this year. Canadian shoppers got a head start on their gift shopping as early as November with retail sales spiking by 1.3%. This was mainly driven by e-commerce, translating to a whopping 55.2 billion dollars, according to Statistics Canada.

With the start of a new year, many are working on a number of different goals, and one of them is to try and live debt-free. All this holiday overspending and indulgence could see many with a mountain of unpaid bills. Here are the top ten ways to dig yourself out of holiday debt:

1. Make Debt Your Best Friend

Now is the time to get comfortable with your debt so you can calculate what you owe. How big is your debt? How much is your salary? What are your daily and monthly expenses and what things can you stop or start doing to save more money? By writing down all of your debt and crunching the numbers, you can start seeing the big picture of your financial situation.

2. Which is Your Biggest Financial Fire?

After taking a good hard look at your debt, you need to decide what needs to be paid immediately. Usually, that means either paying off the credit card with the highest interest rate or perhaps a car loan. Since credit cards have high-interest rates, it is best to pay these off first to save some of your money long-term.

3. Say Goodbye to Your Credit Cards (at least for a while)

It is time to put those credit cards away because you don’t want to rack up any new debt. Do not touch your cards until you’ve cleared your debt. Put them in the freezer if you have to!

4. Say No to Off Season Sales

Steer clear of unnecessary online and in-store shopping promotions, no matter how great the deals are. During the off season shopping time, retailers are eager to get rid of last season’s merchandise and slash prices drastically. While it can be very easy to get caught up in a bargain shopping frenzy, remember the big picture is to get rid of your debt. So be sure to keep your eye on the prize and say no to off season sales!

5. Set a Spending Budget

If you find yourself overwhelmed by looming credit card bills and cannot seem to get caught up, then it is time to put yourself on a spending diet. You need to set a proper spending budget otherwise instead of managing your money, your money will manage you. Now is also a good time to do an inventory of your spending habits and take a good hard look at what expenses you can cut or trim. Take a closer look at some of your monthly expenses that you often don’t give a second thought to. Why not shop around for services like car insurance, internet, home phone, cable and see if you can get a better deal? Try to avoid locking into a contract with the cell phone and cable providers to qualify for gifts with purchases or deals because usually, it’s a trap to keep you locked in and charge you exorbitant monthly fees.

6. Manage Your Budget with an APP

If you want to make your money management plan a little easier, it might be time to invest in an app. Some of the more popular budget apps include Mint, PocketGuard, and YNAB. But be careful as some of these apps are almost always linked to very personal information such as your bank and credit cards. If you are not technically savvy in knowing how to best protect your personal financial information online, then a budgeting app could be replaced by a traditional excel spreadsheet.

7. Avoid Impulse Buys

A deal is not a deal if you are spending money that you don’t have in the bank. While most of us are doing most of our personal shopping online because of Covid-19, there are a few exceptions. If you’re still running to Tim Hortons or Starbucks to get your caffeine fix, all you are doing is just throwing your money down the drain. Spending $ 2 - 5 dollars on a daily coffee run amounts to anywhere from $672 -$1680 dollars yearly. With the majority of Canadians working from home, why not make your cup of java right at home and save yourself hundreds of dollars?.

8. Start Saving for Holidays Early!

Do not forget to put a separate section in your budget for holiday/birthday spending so you can avoid getting yourself into debt this next holiday season. Make a condensed list for everyone that you need to buy a gift for and possible ideas for each person. Make sure you can access the list with you wherever you go shopping (either online or a hardcopy) so you can map out your shopping game plan. This way you can buy the specific necessary items on your list when they go on sale all year long and get the best deals possible, putting more money back in your pockets and avoiding increased holiday bills.

9. Live Within Your Means (stick to that budget!)

Now is the time to embrace being frugal and be happy with what you have. That means trying to do your grocery shopping and looking at no-name brands. We recommend buying fruits and vegetables in season because they will likely be on sale. While it’s important to keep spending to a minimum, don’t deprive yourself completely. For example, if you have multiple streaming services like Netflix, Amazon Prime, and Apple TV, stick with the one you use the most and put the remaining money towards your debt.

10. Debt Consolidation Loan for Homeowners

If you are a homeowner, our final tip to get you out of holiday debt is consolidating all your numerous debts into one through debt consolidation loan using equity that is available in your home. Rather than dealing with multiple creditors, you can make things easier by opting for debt consolidation to simplify payments and pay off your debt much faster!

Credit Card Bills        
Creditor Debt Interest Rate Monthly Interest-only payment Minimum Monthly Payment (Assuming average is 3%/month)
1st Credit Card $20,000 21.99% $ 366.50 / month $ 600.00 / month
2nd Credit Card $12,000 19.99% $ 199.90 / month $ 360.00 / month
3rd Credit Card $8,000 24.99% $ 166.60 / month $ 240.00 / month
4th Credit Card $3,000 28.00% $ 70.00 / month $ 90.00 / month
Total Interest $ 802.93 / month $ 1,290.00 / month

If you can lock in a lower interest rate and continue making the larger monthly payments towards your loan as you were prior to consolidating, you will likely be able to pay the down debt much faster than anticipated!

Consolidation Loan Debt Interest Rate Monthly Interest-only Payment Monthly Cashflow Savings
$ 43,000 7.99%* $ 286.31 / month $1,003.69

*It’s important to note that there are additional fees associated with a home equity loan that can at times bring the APR up to 10.99% or more, but that still is a significant savings on interest and monthly payments.

With last year being a very uncertain year due to the pandemic, adding holiday debt can leave you feeling frustrated and stressed as to how to deal with all your debt.

While there is no quick way to get out of debt, it will take some time to get back on your feet.

If you’ve dug yourself a little too deep this holiday season and need some help getting out of it, debt consolidation just may be the solution to all your financial challenges. The professional team of mortgage brokers and agents at Clover Mortgage are here to help you get out of debt much quicker thanks to home equity loans that could solve all your money management problems.

Steven Tulman
Written By Steven Tulman
“Making the process of getting a mortgage an easy and enjoyable experience for every Clover Mortgage client!”