You overdid it, but you’re going to be OK. You’ll need to act swiftly, however. Credit card debt becomes more expensive as time passes. That’s because the interest on balances carried past the 30-day mark is charged daily, and at a rate typically of 20 per cent or higher. So bring on all that good January motivation, and get this credit card debt sorted.
Pause all spending
Whatever you do, don’t take on more debt while you’re paying off existing debt. It’s imperative that you stop all non-essential spending for at least a month so you can turn this ship around. Non-essentials are things like shopping for clothes and shoes you don’t need, takeout and coffee purchases you can avoid by preparing food and drinks at home, changing social plans so they don’t cost anything, and postponing the ones that do. If there are subscriptions that need to be cancelled or downsized, do all of this promptly.
By shrinking spending to only essentials like your rent, groceries and cellphone, you’ll save money, and you can think more clearly and strategically about the following steps.
Rush your returns
Whatever can be returned from your holiday spending needs to be returned asap. Decor, gifts, supplies you didn’t use, unnecessary purchases made during the Boxing Week bonanza. Take everything back that you possibly can, and get your money refunded back on your credit card rather than a store credit. Similarly, if you’re behind on filing your benefits claims, billing your customers, or inputting your hours into your employer’s time-tracking system, bring it all up-to-date.
Consolidate to a lower interest rate
Now that all the spending has essentially stopped and refunds have been applied to balances, you can see what you owe on which cards, and when it’s all due. Explore consolidating all the credit card balances to a lower-rate loan or line of credit. This will bring down the interest costs (and usually the total payment amount) you pay every month, which means more of your payments can go toward the principal balance rather than interest.
Consolidation loan rates vary widely among lenders, but going with a lender you already have a relationship with can produce the best outcome. Too many hard credit inquiries will negatively impact your credit score, so if you’re initially declined, wait six months before applying again. During that waiting period, bring down the balances as much as possible on all your cards.
Some people turn to family members to privately consolidate debt. If this is an option for you, explore it. Just ensure you’ve got a contract and know if there are strings attached.
Put a dent in the most expensive balance
What can you do to raise some extra money pronto? Can you take on extra shifts or bill a few more hours? Can you find a side job or call in that loan you made to your friend last year? Will you be getting a bonus or commission payout soon? Can your loyalty points be converted to cash and applied to your balance?
Now, look room-by-room for things you can sell on Facebook Marketplace, Kijiji or your local swap-and-sell website. Gaming consoles, tools, designer suits and bags, bed frames and strollers. Over time, you can evaluate the feasibility of shifting to one car or no car and downsizing your home; but those changes take time and can’t offer immediate relief.
Use 80 per cent of the money you raise to pay off the most expense balance first. The other 20 per cent can go into an emergency fund, which will help you stay out of debt in the future.
Attack the highest interest first
If you have multiple cards, even multiple consolidation loans, focus on paying a bit extra on the one with the highest interest rate first. Skip the lattes and extra trip to the grocery store for special ingredients when you have food at home. Use this extra $25 per week to make an additional weekly payment. Once the first balance is gone, roll that payment, and the little extra payment you were making, onto the next. Keep going until the debt is gone.
As balances shrink, motivation grows. Stick with it and you’ll also see your credit score improve within three to four months.
Try for 90 days and if you simply can’t keep you, explore other options
If you’ve done everything to clear the balances but can’t keep up, you may need to meet with a licensed insolvency trustee service who can help you prepare a consumer proposal. This is a process where an agreement is made between the various lenders you owe to pay them something, but not everything owed. This option reduces payments and typically the interest rate, and is far less damaging than bankruptcy, but still negatively impacts your credit score.
Holiday overspending happens to a lot of people. Don’t beat yourself up. Learn from it. Face the numbers. Open the app. Look at the balance. Take a breath. You can’t fix what you won’t face, and seeing the real numbers is the first step to taking control and moving on from this.
