If you are returning to work with the mountain of credit card debt used to cover Christmas and holiday expenses, you will know by now how ho ho horrible it is.
Before I get into it, let us wish you all the very best for a happy and prosperous 2019. We equally hope you had a safe and relaxing time over the Christmas holiday break and you’re back refreshed and ready to face the new year with excitement and positive anticipation.
I love people who are full of post-Christmas cheer and optimism for the new year ahead. Personally though, I’m more of a realist than an idealist and in my experience the new year doesn’t always turn out as one expects. For instance, I thought that 15 nights on a remote Fijian island would be all the relaxation I needed. Seemed that Cyclone Mona had other ideas and we can’t leave in the current weather conditions. So…I’m writing this newsletter from the main Bure (room) of the Matava Resort overlooking Waya island. Granted, the weather isn’t too crash hot but check me out working remotely. Four more nights in Fiji … no complaints here!
Others may not be so lucky. Many are returning to work already burdened with the mountain of credit card debt that was used to cover Christmas and holiday expenses. If you find yourself in this situation, you will know by now how ho ho ho horrible it is. Not the best start but don’t despair. There are steps that you can take to ease the pain.
1. Put your credit card/s on ice
Just like a fine bottle of sparkling champagne, the first thing you need to do is put those credit cards on ice. By that I mean, STOP using them! Put them in the freezer or cut them up. I’ve heard that some people have experienced a cathartic release after they cut up their cards so who knows, it might be just the ticket for you too.
Whatever you decide, do it now. A credit card is not a “safety net” or a “buffer” for when things go pear-shaped. More often than not, they are the reason why things go pear-shaped. They are the pear, and a rotten one at that if they are not used to your advantage. So, be bold and take the leap. It’s the most courageous thing you can do for yourself if you are struggling with credit card debt.
2. Get professional help
Not that you’re crazy…ok, maybe you’re a little bit crazy but either way, this may be the right time to consider getting a financial advisor. My partner and I use a financial service to manage our personal finances so that we don’t get into unnecessary debt. It also helps us to communicate better about our short-term and long-term financial goals. Saves any arguments over money as well which is great – we get more time to argue over other stuff instead. ? Seriously though, this may be a good way for you to get your debt under control by coming up with a strategy that will help you with your financial goals now and in the future. Talk to us about it if you want to know more.
3. Open a Christmas or Holiday account
Figure out how much you spent over the holiday break, divide by 12, 26 or 52 and save this amount every month/fortnight/week into your new holiday account. Get an automatic debit from your selected account and forget it. You can even ask your bank to put restrictions on the account so you have to go into a branch to withdraw or transfer money, removing the temptation to spend from this account throughout the year.
This account doesn’t exist until December 2019. You know you can do it. If you can pretend that you are not going to max out your credit card next Christmas break, you can certainly pretend that you don’t have a Christmas/Holiday account.
Just do it and do it now!
For example, say you spent $5,000 over the break. This would equate to $96 per week, that’s $13.70 per day and if there’s 2 of you, that’s $6.80 each per day – a coffee and half a muffin. If you have a home loan, you could potentially create a second “offset account” (if your lender allows multiple offsets) and call it “2019 Christmas spending”. Having the money in your offset account will help reduce the interest on your home loan too – double win.
4. Put it on the house
You can get on top of things very quickly if you have enough equity in your house.
This may be a good option for you, particularly if your cash-flow just won’t allow you to pay off the debt, and/or the debt is large. There are ways we can structure the debt so that it is paid off quicker (5-7 year loan term, instead of the standard 30 year term).
If you have at least 25-30% equity available, it could be worth paying out your credit card debt now. This would also be a good time to check your mortgage interest rate. You may as well try to save money where you can so that you can pay your credit cards down with more ease.
Give us a call and set up an appointment so that we can go over your situation to see what options are available to you. With a solid plan in place for right now and in the future, you will never experience the Christmas credit card hangover again.
5. Change your mind
It’s time to change your mindset about credit cards. If your credit card is stressing you out right now, it is not your friend. It doesn’t respect you or your lifestyle and it’s only aim is to sabotage your efforts to create a better life for yourself. If you want your credit card to be your friend, you have to treat it with the respect it deserves. Stop using it to supplement your lifestyle. Every time you swipe that card you are in effect taking out a bank loan. If you miss a payment even once, your chances of getting a bank loan down the track will be put at risk, not to mention damaging your credit rating. If you only spend what you can afford to pay back within the interest-free period, your credit card will work for you rather than against you.
Unfortunately, it is far too easy to get caught up in a revolving credit line that never ends. It’s called a “line” because it lines the bank’s pockets. This credit card game has its own set of rules and if you don’t know how to play, you probably shouldn’t be sitting at the table. Go back through steps 1-5 above and plan your escape right now, or contact us – we can go through each one together.