Time to pay the piper

You might find you’re carrying an extra few pounds after indulging over the holidays, but did your debt get fat too?

If you’re guilty of overindulging on holiday spending, you’re not alone, says Alison Griffiths, a well-known Canadian financial expert and host of TV shows Maxed Out and Dollars and Sense. She says most people don’t know what they spent over the holiday season and don’t have a good handle on how much they owe.

“Go through your bank and credit card statements from December and January and look at them. It will take you less than an hour,” Griffiths recommends. “Identify everything you spent on gifts.”

What you find may leave you a bit breathless. “I find, generally, people spend about twice what they think they did during the holidays,” Griffiths adds.

That makes it all the more important to take control of that debt now, before it’s time to contribute to your RRSPs and RESPs. Follow these tips from Griffiths to get holiday debt under control:

Pay off high interest debts first: Whether that’s high-interest credit cards, “don’t-pay-for-a-year” deals or other high-interest debts, Griffiths recommends paying off those debts first. Pay the minimum amount on your lower interest cards and put the maximum amount of money you can on those high-interest debts. Once those are paid, then you can focus on the lower interest debts and saving.

Consolidate your debt, but only if you have to: While Griffiths isn’t a fan of home equity or personal lines of credit (she says open-ended credit can cause people to put off repayment), if you have access to one, it is better to consolidate all your debt in one lower interest area.

Do your income tax early: If you’re due for a refund, file your income tax return as soon as you get all of your T-slips. The earlier you send in your tax return, the more likely you are to get that refund and dump it on to your debt.

Make more money: You can find ways to make extra cash by selling old furniture, records or memorabilia on websites like Kijiji, Craigslist or eBay to pay off some of those holiday bills. Or why not ask your boss if you can pick up an extra shift to cover those credit card bills? You may even want to consider getting a part-time job until you’ve cleared the decks.

Start planning for next year now

It’s good to pay off the debts of Christmas past, but don’t forget that the holidays come around at the same time every year. Griffiths recommends you start saving in January for this year’s holiday to ensure you don’t end up back in the same boat next January.

Try saving a certain amount each month or rolling your tax return into a six month GIC to lock the money up until November. “That becomes your holiday spending money, then you don’t have to concern yourself with putting things on your credit or debit cards,” Griffiths says.

Did you know? Overdraft protection isn’t your friend

Overdraft protection isn’t always what it seems. You might think it will get you out of a tight spot, but in fact, it could end up putting you further into debt.

“Do not be fooled by overdraft protection,” says Griffiths. “Check the fine print, because a lot of overdraft protections have interest rates as high as credit cards.”

And that’s in addition to any transaction fees, she adds. Say, for example, there’s a $5 transaction fee every time you go into overdraft. If you make 10 purchases from overdraft, that costs you $50. But that’s just the fee. There is also interest charged on top of that, so don’t let overdraft protection become a crutch when funds are tight.