TORONTO – If you were extra generous this holiday season, the New Year could mean new debt.
According to figures from Equifax, Canadians owed an average of $20,000 in non-mortgage debt in 2014. Add that to the bills racked up after buying presents, going on trips and entertaining, and many Canadians will soon be opening up hefty credit card bills to kick off 2015.
Financial experts say put the plastic away and start tackling your debt with a realistic plan and timeline.
“Assess the damage and determine a goal that you want to do in terms of real numbers and real dates and when you want to pay off that holiday debt by,” said Jeffrey Schwartz of Consolidated Credit Counseling Services of Canada Inc.
Schwartz says the number of calls he and his team receive after the Christmas doubles as consumers faced with debt seek advice on how to pay it off for good. Depending on how high the credit card balance is, paying only the minimum amount means it could take decades to bring it down to zero.
“When you make a minimum payment the majority goes towards servicing the interest,” said Schwartz. “The rest and a very small amount goes towards retiring the principle.”
Personal finance expert Rubina Ahmed-Haq says paying off your debt is essential, especially on cards with high interest rates.
“Service all the other debts but make sure you tackle the high interest debt first because that’s what’s costing you the most amount of money,” Ahmed-Haq said.
Putting money away into savings is also important as well as finding ways to save a few dollars on daily activities. When it comes to New Year’s resolutions like eating healthier food or getting in shape, you don’t have to rack up more debt to be successful. Ahmed-Haq suggests doing free activities like taking a jog outside or borrowing a fitness DVD instead of signing up for expensive gym memberships that could contribute to more debt.
“It’s important to keep your new years resolution but try to find it for free, try to do things that won’t cost you any money,” said Ahmed-Haq.
But savings may be challenging for some Canadians especially in January when the Canada Revenue Agency takes Employment Insurance and Canada Pension Plan payments more aggressively from your pay which means smaller pay cheques. Add that to municipal tax bills that arrive at the beginning of the year depending on where you live.
“Municipal taxes they are actually completely due January first, right away,” said Municipal lawyer John Mascarin of Aird & Berlis law firm. “You’ll get a tax bill thats an interim tax bill at the beginning of the year that says this is what we think you might pay. Well surprise, by the time the next tax bill comes which is the final tax bill there’ll be an increase and you’ll actually likely be paying more.”
For that reason experts suggest putting money away in your tax-free savings accounts so that there are no surprises throughout the year. Even a small amount per month could make a big difference in your savings account especially as RRSP season inches closer.
To make sure you are paying more to yourself and not creditors, financial experts say old holiday bills are a good reminder of the financial headache you want to avoid next year.
“Keep your bills from November, December and January. Those are the months that we’re going to get the bills for Christmas shopping,” said Ahmed-Haq. “Put them at the top of your Christmas decorations so next year when you open the box, take out the tree, take out the decorations, you’re going to see that bill.”