Curing a post-holiday credit hangover

Peter Walsh
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Personal Finance Expert tips to handle debt

With the holidays mostly a memory, crowds at the province's malls and shops have thinned out - meaning many shoppers' credit cards are thick with debt. Firm retail sales statistics for December won't be available until next week, but anecdotal reports across the country and St. John's suggest shoppers were busy taking advantage of larger-than-normal savings. Many national and local retailers slashed prices to offset dramatically lower consumer confidence created by the U.S. recession.

Inevitably, many of those shoppers extended themselves and now face a long winter paying down debt. With the U.S. and much of the world in recession, many people are re-evaluating their finances. Scotiabank provided The Telegram five tips to help with personal debt management.

Consumers feeling overwhelmed by excessive bills and finding themselves in debt after a holiday spending spree can take heart and follow the advice of experts how on to reduce credit-card debt. Photo by Joe Gibbons/The Telegram

With the holidays mostly a memory, crowds at the province's malls and shops have thinned out - meaning many shoppers' credit cards are thick with debt. Firm retail sales statistics for December won't be available until next week, but anecdotal reports across the country and St. John's suggest shoppers were busy taking advantage of larger-than-normal savings. Many national and local retailers slashed prices to offset dramatically lower consumer confidence created by the U.S. recession.

Inevitably, many of those shoppers extended themselves and now face a long winter paying down debt. With the U.S. and much of the world in recession, many people are re-evaluating their finances. Scotiabank provided The Telegram five tips to help with personal debt management.

First, don't panic or make emotional decisions. This avoids making financial decisions you'll regret in the long term. Have a financial plan and stick to it.

Second, pay down high debt first. Start by paying debt on any higher-rate department store or credit- card debts. Be sure to know your various interest rates and options, such as loan consolidation, which could free up cash.

Third, reduce discretionary spending to free up more money to pay down debt. Review the household budget to track how much money is coming in, what the fixed expenses are and identify money on non-essential items. For example, pack a lunch instead of eating out every day, or cut back on magazine subscriptions or visit the library more often rather than buying books. Then, consider setting up an automatic savings plan so that the money you're saving comes straight out of your bank account.

Fourth, make an RRSP contribution and use any refund to pay down debt. The refund could be used to pay high-cost debt, make an extra mortgage payment, or contribute to a Registered Education Savings Plan (RESP). Borrowing to make an RRSP contribution makes good fiscal sense if you are confident you can pay the loan back relatively quickly.

Fifth, position your investments for recovery. Remember that when markets are down, there are investment opportunities for the long term. Be diversified with an appropriate mix of assets (equity, bonds and cash equivalents) that fit your risk tolerance, time lines and income. Stay in regular contact with your financial adviser.

Of course the best way to handle holiday credit debt is not to rack it up in the first place.

"We've got two kids and we laid out a budget of what we were going to spend on the kids and each other and our families," said St. John's shopper, Laura Crawley.

"The last couple of years we were able to do that. Before that, it was pile it on the credit card and chip away at it over time. We'd put a bit on every check."

Sisters Brenda Humphries and Pat Bursey had enough post-holiday cash left over for some early January shopping.

"I don't have any debt after Christmas. I spent within my means," said Humphries.

"I don't want to go out and put myself in debt over Christmas. That's not what Christmas is about," said Bursey. "Most every year I try not to have any debt for Christmas."

pwalsh@thetelegram.com

Organizations: Scotiabank

Geographic location: St. John's, U.S.

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