January bills are coming – time to get serious about paying off credit card debt

Remember all those great purchases you made during the holidays? It's time to pay up.
Remember all those great purchases you made during the holidays? It's time to pay up. AP Photo/Damian Dovarganes, File

TORONTO – They’re coming, those dreaded post-holiday credit card bills. Are you prepared to tackle the debts you raked up during the holidays?

While you may be tempted to ignore your bills and head for the hills, experts say now is the time to actively pay down your debt rather than let it spin out of control.

“[January] is a time when Canadians are faced with the harsh realities of their holiday spending,” said Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada.

“People like to go above-and-beyond to provide a memorable holiday season for their family, and they’re feeling the consequences now.”

Canadians are neck-deep in debt – for every dollar we earn, we owe lenders $1.63. According to recent numbers from Equifax Canada, the average Canadian owes $20,891 (and that doesn’t include mortgage debt).

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READ MORE: Canadians pile on more debt, as U.S. households pay it down

It’s no surprise then that Canadians say paying down debt is their top financial goal for 2015.

A recent poll from CIBC showed 22 per cent of respondents said debt repayment is their top priority, followed by building savings at 12 per cent and paying bills at 10 per cent. It’s the fifth year in a row debt repayment topped the list of priorities in the annual poll.

But wanting to do something and actually doing it are very different things.

Experts are urging Canadians to approach their debts with more than just good intentions.

“With money as tight as it is in many households, people need more than willpower – they need a plan, not just a resolution,” said Schwartz.

The team at Consolidated Credit offers these tips for proactively paying off your January credit card debt:

Stop spending and put away the plastic

Break the cycle of charging it and give your credit cards a rest. Fight the urge to make large purchases and use cash when you shop.

Assess the damage and set a goal

Collect all of your bills so you know how much your owe. Then, set realistic goals for repayment and pick a date that you’re working toward getting your balance to zero. “Think about how much you are going to pay and by what date because you’ll never hit the target if there is nothing to aim for.”

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“A lot of people think of a budget as a four-letter word. And we do too. It’s called a plan,” said Scott Hannah, CEO of the Credit Counselling Society (CCS).

Take a snapshot or your finances to see what money is coming in and where it’s all going. You may find some easy areas to cut back on, like restaurants and cellphone bills, to help pay off your credit cards.

READ MORE: Tips for paying off your debt and saving for the future 

Pay more than the minimum

By paying more than the bare minimum, you could save thousands of dollars in interest over the long term.

“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.”

If, for example, you spent $1,899.99 for a new fridge during holiday sales, it would take you nearly 15 years to pay it off if you only made the minimum payments. Add in more than $2,400 you would pay in interest, and that ‘bargain’ fridge could end up costing you over $4,300. (Calculated at 19% APR; Minimum payments = interest + 1% of balance) 

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Don’t delay

Don’t wait for the bill to come in the mail – start paying off your debt today. If you have cash from the holidays (say from gifts or bonuses) use it to pay off your credit card.

Ask for help

Again, these steps may be easier said than done. If your debt is out of control and overwhelming seek help from the experts, including charitable organizations or trained credit counsellors.

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