Yahoo Finance Ask the Expert: How to tackle holiday debt and reset your finances in 2024
For many, holiday debt is a major source of stress and anxiety.
One in four Canadians aren’t confident they’ll be able to pay off their post-holiday bills on time, according to a recent BMO survey. This comes during a period when Canadians already carry $1.82 in debt for every dollar earned, per Statistics Canada, with the amount of total mortgage interest payments nearly doubling since the Bank of Canada started hiking rates in 2022.
“So, if on top of that you have a holiday hangover with credit card debt, it can almost feel insurmountable,” Jackie Porter, certified financial planner with Carte Wealth Management, said in an interview with Yahoo Finance Canada.
The solution, she says, is to “take the bull by the horns.”
Here are some of the different strategies experts recommend to recover from holiday debt and get a handle on your finances this year.
Don’t hide from your debts
Although it may be tempting to turn a blind eye when feeling anxious about your finances, Porter says that will only make matters worse.
“It’s actually more anxiety-filling when the debt becomes like a bogeyman and you don’t know what it is,” Porter said.
Instead, she advises Canadians to find out how much debt they’re in, how much interest they’re paying, and how long it will take to pay it off.
“Then, you can actually look at your options and start creating scenarios for yourself to get out of your debt faster,” Porter said.
Porter recommends paying down the highest interest rate debt first, which will likely come from a credit card. Debt consolidation may also be an option, she adds.
“You might have lots of different payments that you’d like to consolidate into a single payment, or you might have higher interest rate debt that you can consolidate into lower interest rate debt,” Tyler Thielmann, president of Spring Financial, said in an interview with Yahoo Finance Canada.
Above all, Thielmann encourages Canadians to find out their options.
“You need to understand where you have flexibility and where you’re actually able to make a difference,” he said. “The auto payment that feels too high, it’s most likely the car you have … credit cards are generally easier to deal with.”
Address the root causes of your debt
Dealing with debt in isolation is unlikely to solve someone’s financial problems, because it doesn’t address the root causes. Therefore, Porter and Thielmann stress the importance of evaluating your entire financial picture, starting with what’s coming in and what’s going out.
“Because living above your means is a surefire way to get into more debt,” Porter said.
Thielmann suggests going through your credit card statements row by row, adding everything up, and deciding if those expenditures truly bring value to your life. If not, he says it’s probably time to make some changes to your budget.
“And it doesn’t necessarily mean cutting stuff out,” Thielmann added. “It could be, instead of this restaurant for dinner, it’s going to that restaurant.”
At the same time, he acknowledges that reducing such expenses won’t always improve someone’s financial outlook in a meaningful way. In some cases, he says Canadians may need to find a way to increase their income, or adjust their expectations on how and where they live.
“Sometimes, those are hard truths,” Thielmann said. “But they’re real truths. For some problems, you’re just not going to solve by cutting out a daily Starbucks drink.”
Put your savings on autopilot
Outside of paying down debt, saving more money is the top financial priority for Canadians in 2024, according to a CIBC poll released last week.
With nearly half of Canadians living paycheque to paycheque, as per a recent Leger poll, it can seem like a daunting task. But Porter and Thielmann agree there’s no time like the present to start putting some money away, even if it’s a small amount.
Porter suggests setting up auto-deposits to facilitate consistent saving.
“Typically, money that goes out of your pocket before you can spend it is the best money that can be saved,” she said. “You just learn to live on less if you have less to work with.”
Building an emergency fund that can cover at least three months of expenses should be the priority, Porter says. But she also recommends allocating funds for retirement and perhaps a short-term goal, like a vacation.
“Put all of those things on autopilot,” she said.
More tips for staying on track
Setting financial goals is a great start. The crucial next step is committing to them.
Porter offers the following tips for staying on track.
Simplify your banking: Use a single credit card and take advantage of budgeting tools or apps like Mint or You Need a Budget, so it’s easy to track your progress in real-time
Have an accountability partner: Much like having a gym buddy, working with someone like a financial planner can help ensure you’re sticking to your plan
Celebrate small wins: Trying to get out of debt and turn around your finances is hard work, so don’t forget to treat yourself when you hit your markers
Focus on one thing: If it all feels too overwhelming, just take action on one thing in 2024 so you’re not in this same scenario a year from now.
Farhan Devji is a freelance journalist and published author based in Vancouver. You can follow him on Twitter @farhandevji.