How to deal with holiday debt and reset your finances in 2024

For many people, holiday debt is a major source of stress and anxiety.

According to a recent BMO survey, one in four Canadians aren’t confident they’ll be able to pay off their post-holiday bills on time. This comes at a time when Canadians already owe $1.82 for every $1 they earn, according to Statistics Canada, and have been paying less in mortgage interest since the Bank of Canada began raising interest rates in 2022. The total amount has almost doubled.

“So when you find yourself in a holiday hangover with credit card debt, it can feel almost insurmountable,” Jackie Porter, a certified financial planner with Cult Wealth Management, said in an interview. Told. Yahoo Finance Canada.

The solution, she says, is to “grab the bull by the horns.”

Here are some different strategies experts recommend to collect your holiday debt and get on top of your finances this year.

don’t hide from debt

While it may be tempting to look away when you’re worried about your finances, Porter says that will only make things worse.

“When debt becomes like a bogeyman and you don’t know what it is, it actually makes you more anxious,” Porter says.

Instead, she advises Canadians to find out how much debt they have, how much interest they pay and how long it will take to pay it back. .

“Then you can really consider your options and start developing scenarios to get out of debt faster,” Porter says.

Porter recommends paying off the debt with the highest interest rate first, which will likely come from a credit card. Debt consolidation may also be an option, she added.

“You may have a lot of different payments and want to consolidate them into one payment, or if you have high-interest debt, you can convert it into lower-interest debt,” said Tyler Thieleman, president of Spring Financial. Maybe we can integrate.”Interview Yahoo Finance Canada.

Above all, Thielman encourages Canadians to find options.

“We need to understand where there is flexibility and where we can really make a difference,” he says. “If your car payment seems too high, it’s probably because of the car you own. Credit cards are generally easier to deal with.”

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Address the root causes of debt

Dealing with debt alone is unlikely to solve someone’s financial problems because it doesn’t address the root cause. Therefore, Porter and Thielman emphasize the importance of assessing your overall financial situation, starting with what’s coming in and what’s going out.

“If you’re living beyond your means, you’re definitely going to end up in debt,” Porter says.

Thielman suggests going through your credit card statement line by line and adding it all up to determine whether your spending is truly adding value to your life. If not, he says it’s probably time to change your budget.

“And that doesn’t necessarily mean cutting back on things,” Thielman added. “Maybe instead, I’m going to have dinner at a restaurant. restaurant. “

At the same time, we acknowledge that cutting back on such expenses will not necessarily improve someone’s financial outlook in any meaningful way. In some cases, he says, Canadians may need to find ways to increase their income or adjust their expectations about where and how they live.

“Sometimes it’s a hard fact,” Thielman says. “But those are real truths. Some problems can’t be solved by giving up your daily Starbucks drink.”

Save money on autopilot

Beyond debt repayments, saving more money is a top financial priority for Canadians in 2024, according to a CIBC poll released last week.

That may seem like a daunting task, since nearly half of Canadians live paycheck to paycheck, according to a recent Leger poll. But Porter and Thielman agree there’s never been a better time to start saving money, even if it’s just a small amount.

Porter suggests setting up automatic deposits to encourage ongoing savings.

“The best money you can save is usually the money that’s out of your pocket before you spend it,” she says. “If you work less, you just learn to live with less money.”

Building an emergency fund that can cover at least three months of expenses should be a priority, Porter says. But she also recommends allocating funds to short-term goals, such as retirement or perhaps a vacation.

“Let’s put all of that on autopilot,” she said.

More tips to stay on track

Setting financial goals is a great start. The next important step is to commit to them.

Porter offers the following tips to help you stay on track.

• Simplify your banking: Using one credit card and leveraging budgeting tools and apps like Mint and You Need a Budget makes it easy to track your progress in real time.

• Have an accountability partner. Just like having a gym buddy, working with someone like a financial planner can help ensure you stick to your plan.

• Celebrate small victories: Getting out of debt and rebuilding your finances is hard work, so don’t forget to reward yourself when you reach your goals.

• Focus on one thing: If everything feels too overwhelming, take action on one thing in 2024. That way you don’t end up in the same scenario a year later.

Farhan Devji is a freelance journalist and published author based in Vancouver. You can follow him on Twitter @farhandevji.