Avoid the January Credit Blues.
With the Christmas season in full swing, we head off to the mall and look online for those coveted gifts to get our friends and family. 67% of those buying gifts this holiday season have admitted to not having a budget set up to cover holiday expenses, according to a new RBC poll. By not having a budget for the holidays, consumers often turn to their credit cards for gift purchases. But, it’s not just gifts put on credit that can lead to the January credit blues. “We often forget to account for all the extras of the holiday season, greeting cards, wrapping, shipping, travel, parties, and meals. It’s scary that so many people are heading into the holiday season with no money set aside to pay for it” says Matthew Keenan, Credit and Education Counsellor at Credit Counselling Service of Sault Ste. Mare and District.
With many of these purchases going to credit card it’s not hard to understand that many people face hefty credit card bills in January and February. However, the problems start when these bills are not paid in full by month end. Keenan points out that, “many people are borrowing money to pay for gifts and other holiday expenses but when left on credit you will still be paying for this Christmas when the Ghost of Christmas Future comes around.”
In fact, if you were to borrow $1,500 to pay for all expenses this holiday season on a credit card that charges 28% interest and decided to pay just the minimum payment it could take upwards of 19 years to pay off and cost an extra $3,978 in interest payments. “That would mean you would have finished paying for your newborn’s first Christmas by the time they are heading off to college or university.”
So how can you avoid the January credit blues? Keenan and Credit Counselling Service of Sault Ste. Marie and District have a few suggestions:
Make a list and check it twice:
There is a reason the man in red has a list and checks it twice. By making a list of who you are going to be buying gifts for you are able to see where you money will be going. By visualizing this you can stop and ask yourself if your Great Aunt Millie really needs another collectable or would a greeting card be enough? A list also helps you stay inline when it comes time to shop.
“A good gift list will include everyone you want to buy for, what you plan on getting them, and how much you are willing to spend” says Keenan. “Further, a list is a form of checks and balance when you reach the mall and get overwhelmed. You can always resort to your list.”
When making a list you have to be aware of tax and any shipping costs. Keenan points out that, “with so many people taking advantage of shopping online, there is an added expense of duty and shipping for each gift, and the cost of the bridge toll if you have the gift shipped stateside. All of these expenses add up even if they are a few dollars here and there. The cost is then amplified if put on credit.” If you have to ship an item then you should consider including the shipping cost into the total cost of the gift to help you balance your budget. Or, set aside a portion of your total holiday budget for items like shipping costs, just avoid the temptation of dipping into it to help pay for an extra gift when you are out and about.
Don’t forget to factor in the “extras”:
“When we ask people how much they spend on Christmas the first thought is always gifts” Keenan says, “but it is so much more than that, we have shipping and decorations, and food, parties, donations, meals at the mall, bridge costs, and so on that add to our total holiday cost.” These costs need to be factored into your holiday budget.
Our “extras” often run a few hundred dollars on their own and if they are not budgeted or thought about they often find their way onto credit cards. “Imagine paying for your turkey dinner in the middle of summer as you are making hamburgers at camp. It just doesn’t make financial sense to put items on credit that won’t last as long as the debt does” says Keenan.
Leave the cards at home:
Keenan suggests that, “the easiest way to avoid putting your gift and holiday expenses on credit is to leave the cards at home. Shopping with cash creates a psychological block in many people, we are far less likely to spend a big bill on a small item then we are to swipe plastic to get that item.”
By using cash only, you must stick closely to your list and what you have budgeted because; going over for one person will mean that you are taking from another. When you use credit or even debit, the likelihood that you will just swipe your card to make up the difference increases.
When shopping with cash it may be wise to have a number of envelopes with you, each labelled with the recipient’s name, gifts you plan on buying, and the allotted amount of cash. This way you know you will have enough to cover your gift expenses.
Make a repayment plan:
If you feel that you must use credit to purchase your holiday gifts, or cover other holiday expenses, be sure that you can cover your bill in full. “To be able to pay back a January credit card bill in full you really have to be on top of your spending. You really have to approach spending much the same way you would if you were spending cash, failing to do that will result in you over spending and then carrying a balance into the new year” says Keenan. He adds, “if you are going to carry a balance it is very important to stop using your cards for spending while paying them back, avoid paying just the minimum, in fact take the balance and divide it by 3 payments to ensure you pay it off quickly and pay back as little interest as possible.”
Use this time to prepare for next year. By having a grasp on how much you spent this year you can take that amount, add about $100 for incidentals, and then divide by 12. The number you are left with is how much you should start saving now to be sure you can cover Christmas 2015 in cash. “It’s not easy by any stretch to think a year in advance and start saving now, but if you spent $1,500 on all aspects of Christmas this year you would have to save $125/month starting January. If you started saving though in Oct you would have to save $500/month, both are a lot to save, but $125 is a bit easier to swallow each month then $500” points out Keenan.
Don’t let the glittering displays and marketing hype dazzle you this holiday season. It’s easy to get caught up in the buying frenzy, but remember, the holidays come around every year and most of us don’t remember the gifts and wrappings from the year before. We do however remember the special moments shared with our loved ones and friends. With a little forward thinking at the start of the month you can avoid the January blues. Happy holidays from Credit Counselling Service of Sault Ste. Marie and District.
The Credit Counselling Service of Sault Ste. Marie and District is a not-for profit accredited credit counselling agency whose mandate is to educate and counsel the community on issues surrounding money and credit management. For more information about credit counselling services in Sault Ste. Marie, please contact Credit Counselling Services of Sault Ste. Marie & District, 298 Queen Street East, Suite 2, Sault Ste. Marie, ON, P6A 1Y7, visit our website at www.creditcounsellingssm.ca, follow us on Twitter @CC_SSM, or LIKE us on Facebook..