Happy 2022! We said this last year, but this year should be better than the one before. COVID-19 is by no means over, but we’ve learned to adapt fairly well here in Canada. Let’s start 2022 on a positive note, and we’re not just talking about the pandemic. It’s time to discuss how to handle your holiday debt! 

If you overspent during the holidays and it’s time to figure out how to deal with your leftover debt. It’s best to tackle this early, so it doesn’t plague you all year, leaving you free to enjoy 2022 more thoroughly. Here are some steps you can take and some options you may have for clearing your debt!

Make a list

It’s time to face the music and see what you’re dealing with in order to handle your holiday debt. Make a list of everything you need to pay back and how much you owe. Order your list from highest to lowest interest rate on each item. Interest rate is most important because the higher the interest rate, the more “extra” you owe with each payment. You want to pay back the highest interest purchases first to limit those costs. You can easily keep track of your debt with a list and get the oddly satisfying feeling of crossing items off once you pay them back. 

Pay off credit card debt

Do you have credit card debt that is manageable with a smart approach? Start making those payments! As we just mentioned, begin by paying off high interest charges first to reduce the interest you owe over time. You can also pay off smaller items that are easier to clear, so you can limit the extra amount of items to worry about. As your available credit increases, you might also be able to enjoy a bump in your credit score.

Make adjustments in your daily spending

You don’t want to pile on extra debt while you’re still paying off holiday debt, so it’s important to avoid going overboard with your spending in the New Year. This means no big purchases, no holiday clearance sales, and no extra shopping sprees you don’t need until you’ve got a better handle on your debt. Of course, don’t cut out the things you need to spend on, like groceries and bills. Just think twice before buying a new sweater, even if it’s part of a major holiday sale.

Refinancing and debt consolidation

If your debt is overwhelming and a basic credit card repayment plan won’t cut it, how else can you handle your holiday debt? If you’re a homeowner, you might be able to take advantage of your home to help you dig yourself out of this hole through a refinance. Refinancing means adjusting some of the terms of your current mortgage, with the idea that your new terms will leave you with some home equity. This might mean securing a lower interest rate so you can spend less on monthly payments, for example. This will leave you with more cash flow to work towards repaying your holiday debt. 

You can also consolidate your debt, which combines your debts into one monthly sum, such as your mortgage, credit cards, lines of credit, etc. This method lumps everything together with the same interest rate, so you only make one payment each month. This still requires careful planning so you don’t overspend, and you’re still paying back everything you owe. Hopefully, this makes the process easier and smoother for you. Debt consolidation can cause a credit score drop at first, but as you go through the process of repaying, you’ll build your credit back up. For this reason, debt consolidation is a longer-term solution.

Save up for next year

We know it’s only January, but the holidays come at the same time every year, so there’s no reason you can’t get ahead now. Look at how much you spent this year, and ask yourself how you can prepare your finances for next year. We always overspend during the holidays, so you can start saving up early to have some backup money at the ready. Of course, you should pay off your existing debts before saving for future holiday expenses. Once your debt is paid off, you can start saving a certain amount each month until the holidays roll around again. 

Contact a mortgage broker

Brokers are experienced in helping people like you handle your holiday debt. If you need help getting started with your debt repayment or have plans to buy a home in 2022, get in touch with a broker. Brokers can help you with debt consolidation if that’s the best path for you, discuss your realistic options, find potential lenders and loans, and make sure you understand the plan moving forward. If you want to buy a home, brokers can also educate you on how your debt might impact your application, what you can do to prepare, and how your credit scores might be affected.

If you’re looking to consolidate your debt, or buy a home, get in touch with me!