Happy New Year, but it’s pretty depressing that us Canadians just hit the trillion dollar mark in consumer debt and it keeps growing.
New Years resolutions don’t work most of the time which is why fitness clubs are a ghost town in February while everyone is still stuck with an annual membership fee. Most of us just don’t have a “hallelujah moment” the first few days of New Years which has much of a lifespan.
The good news: It’s a new year! It’s a chance to start over, to resolve to do better, to do more, or in the case of your payments and all that interest – to do a lot less.
The bad news? You’re already broke! How’d that happen? Well, we spend more than 120% of our disposable income, half of us have no savings and almost 70% of us don’t even make RRSP contributions. Why? Because every dollar we earn goes to make a long list of lenders really really rich and there’s simply nothing left at the end of the month. Never mind that the average person figures it’ll take two months to pay off their Christmas debts when surveys keep showing it’s actually more like six months.
How do we make it through January with the Christmas and other bills heading our way?
When you’re in a hole – stop digging. In other words, spend less or earn more. Both will have a huge impact in changing your financial situation really quickly.
Annual bills kill your budget, but they’re not a surprise. We know they’re coming – but we haven’t got the money to pay them. Open a savings account that’s not hooked on your ATM card. Then add up what you’ll need for next years’ Christmas bills, your property tax and car or home insurance. Divide it by 12 and put that monthly amount away.
Set yourself a credit limit. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. Anything below that, you’ll pay with real money instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways.
Pay off one bill. Minimum payments buy you another month – nothing more. It’s treading water. Credit cards and debt are not your friend. They’re financial dream killers and suck money out of your pocket and add a ton of stress to your life and your relationship. Take your smallest bill and put every dollar you can towards it while paying minimum payments on everything else. When it’s gone, take the next smallest and focus only on it. This step-up plan will get you debt free in less than half the time. It’s an entire section of the It’s Your Money book and will become a huge tools for you.
Close your overdraft. I know – it’s like being hooked on drugs. It’s so convenient and always there and you can’t live without it any more. Well, that’s what the banks were counting on. Just a $1,000 overdraft will cost you between $200 and $300 in interest and fees. It’s a one-time pain to cancel the overdraft, but it’s worth it.