December 2006

New year, old debt

Surveys show that almost three-quarters of Canadians have an unpaid credit card balance in January – a balance so high that more than 25% take six months to bring it down. Talk about a spending hangover.

It’s a well-known fact: every year, December is when merchants really ring up the sales. A less familiar detail, however, is that January is when credit card companies truly celebrate the festive season! Most consumers finance their holiday purchases with plastic – a fact that can have extremely unpleasant consequences if they’re not careful.

The spending treadmill

Despite the best of intentions, it’s easy to lose yourself in the endless cycle of gift-giving that is part and parcel of the holidays. And, inevitably, when we buy presents in haste, we end up spending more than we may have wanted – the same goes for restaurant meals and all the other extras. Each Canadian consumer, in fact, spends more than $1,000 at Christmas. Although a few manage to stick to a budget, even some of these far-sighted individuals end up spending more than they’d intended.

Pressure to buy is particularly high at this time of year. If it isn’t the kids clamoring for the latest video game console, it’s “buy now, pay later” offers, or the fear of not finding just the right gift for that special someone. In short, everything conspires to make us lose control of our personal finances!

Fortunately, there are ways to limit the damage.

How to keep your head

The following tips are really simple – they just require discipline.
  • The first is to decide in advance how much you can spend on presents, decorations, food, and other holiday items. Even though, realistically speaking, most of us will find it hard to stick to this figure, the process has a major virtue: it forces us to keep track of our purchases. Once we know we’ve already exceeded our limit, it’s usually easier to put on the brakes.
  • The second – maybe something you’d like to keep in mind for next year – is to stagger your purchases throughout the year. Why buy everything in December, when you could just as well pick up a few things in the fall? That way, even if you’re using a credit card, you can start paying off the balance before the holidays arrive (with their attendant spending frenzy). With a little luck, you’ll be able to pay off the full balance at the end of every month, instead of paying interest on interest… and more interest, for the next half of the year.
Like so much of what’s involved in financial security, the key to success is just a question of planning: limit the risks before they can materialize, and manage your assets methodically.

Even during the holidays!