After the holidays we all can relate to the dread of opening a credit card statement and wondering how long it will take you to pay off holiday debt. Here are our best tips to budgeting to recoup from the holidays:
Making a budget is probably the hardest step, but also the most rewarding, if done correctly. When you are starting to budget, you will need to first detail a list of your fixed costs – those expenses that you must pay. Fixed costs could include mortgage payments or rent, strata payments (if applicable), property tax payments (if applicable), electricity costs, water costs, internet, and more. After this you will need to determine your variable expenses, or the other main costs you have such as food, entertainment, and daycare.
Once you have set a price tag on all of your fixed costs and variable expenses, it’s time to decide how to manage the budget. The best practice to ensure your budget is executed is with a simple practice of cash in jars. The idea behind money jars is that each is given an item line from your budget – for example one jar will have “food” written on it, another represents “entertainment”, and so on. As you get paid, you withdraw the funds you need to top up the jars to the amount specified on the budget. After this, you have that set amount to spend. Having funds in a jar will make you more aware of expenses because the available funds are consciously in sight.
The problem with budgeting but still utilizing your cards is the ability to overspend and not notice. This is the common issue if, for example, you are using a credit card for points but aren’t keeping track of spending.
Pay the high interest debts first
You should always ensure you are paying your minimum payment on all of your debts as required – but where should you put the bulk of the money when budgeting to pay off debt? Always pay off high interest debts first. By paying off the higher balance cards as priority, this will reduce your overall interest costs being charged to you on a monthly basis. As you reduce your credit obligations, more of your money will be paying off the direct principal of the debt instead of just the interest. Once you’ve completed one card, the best practice is to move onto the next highest-interest card.
Talk to your credit providers
Another great simple way to start reducing your debt load would be as simple as trading in the points credit card for the provider’s lowest interest credit card. Another alternative would be to open a Line of Credit (LOC). LOCs are typically known for having higher limits and lower interest rates than most credit cards. Depending on your situation, it might make sense to open an LOC and consolidate multiple high interest credit cards into one lower interest payment that could be more manageable.
Balances on cards
This won’t help you save money as much, but it will help you retain your credit score. Always ensure that when paying down your debts, you pay down to at least to 75% of the balance so your higher limits won’t start to negatively impact your credit score.
Needs over wants
As when we budget, we always have wants as well as our needs. You will need to award yourself when you hit milestones! It can be as simple as once you payoff one of your cards, you get to treat yourself with a dinner or purchase the one shirt you’ve noticed on that store shelf the last month. By rewarding yourself with small tokens, it will keep you motivated and feeling accomplished for being able to get yourself in a better financial situation.
Although budgeting can be hard, tiring and hard to stick to like our new years resolutions – 3 weeks creates a routine, 6 months makes a habit!