Debt reducing strategies for the holidays

Helpful tips to avoid wracking up debt this holiday season, and plan for the next one

The gemstone earrings are beautiful. And who wouldn’t want the latest tablet PC? It’s always great to give gifts. But paying for them come January? Well, that can be another – and very stressful – matter entirely. Canadians are racking up more credit debt than ever before so it’s easy to understand that you can get in over your head, especially at this time of year, and derail your long-term financial well-being. Instead, why not give yourself the gift that keeps on giving – financial stability – by using these strategies to control debt and make better use of your money.

Wrap up your cards – A high credit card limit or line of credit can lure you into buying more than you can afford. If you spend more than you can pay off each month, you’ll pay interest on the balance, often at very high rates of 20 per cent or more. So those earrings or that tablet PC will end up costing you a lot more and you’ll likely be paying for them for a long time.

Keep your credit cards in your pocket unless you intend to pay off the balance each month. If that’s the case, try to use a credit card that offers reward points.

Get into the spirit of the season – but not too much. Those earrings are super expensive but you really want to buy them. Resist! Don’t feel compelled to buy expensive gifts. Remember, it really is the thought that counts.

A better alternative: Each month, put a small amount into a savings account dedicated to Christmas presents and buy those earrings for cash next year.

And speaking of cash, purchase gifts out of your cash flow. If your cash flow is tight, look for cost-effective ways of restructuring your debt to free up more dollars on a regular basis.

And speaking of more dollars, think beyond the season, look to your future – and establish a realistic strategy for saving toward your important life goals. Here’s a start:

Reduce ‘bad debt’ (such as credit cards) and consider debt consolidation and/or a monthly debt reduction plan.

Launch an emergency reserve perhaps in a Tax-Free Savings Account (TFSA).

Protect your income and family with life, critical illness, and disability insurance.

Fund your children’s education with Registered Education Savings Plans (RESPs).

Add funds to your retirement by investing in a Registered Retirement Savings Plan (RRSP). Pay off some of your debt or add to your savings with the tax refunds that result.

Debt control and financial health are worthy goals. Your professional advisor can give you the gift of good advice to help you reach them – in every season.

J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc.. His column appears every Wednesday.

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