As the sands of time flow through that glass thing, we get creakier, stiffer and, well, older. Diet and exercise can do their thing, but sometimes we need to turn to chemistry for help. A routine doctor’s visit led to the discovery of my rising blood lipids and the need for some statin pills. The medication lowered my numbers , but the process opened my eyes to another set of numbers. The whimsical world of drug pricing. You get to benefit from my journey and learn some ways to save on prescription drugs.
It’s the start of a new year, marked by some timeless traditions. Some of us drag out Christmas trees to the curb, others dismantle and box our Festivus poles while others pack up menorahs or kinaras. There are lights to be stowed, pine needles to vacuum and gifts to be worn, hidden, stowed, drank, returned or re-gifted. But after the cat eats the last piece of tinsel and the final unloved morsel of fruitcake is tossed, comes the hard part. How to eliminate holiday debt?
So unforgiving, that bold black text on crisp white statement. And the totals, so clearly inflated. There must be a mistake or five here. Then starts the questions and or blamings, “what was that $312.54 for?” or, “honey did you buy something from JBM Trading Company 412?”. Often there is a surprise bill or two that arrives around the same time, some medical test invoices, the annual property tax bill, or some school fees for the kids.
It all adds up to, well, more than you have in your checking account. What to do? With credit card interest at 20-30%, compounded monthly, getting rid of this debt is a 5-alarm blaze. And paying the minimum amount due is a ticket to the start of a financial apocalypse. It needs to go. All of it.
How bad is this thing?
Start by surveying the damage. Get it all out there. The paper statements, the online balances, the main credit cards and the branded store ones. And yes, even the “I only got it to get that in-store discount on that one big thing that you swore that you would never use again”, cards. Add it all up. Make up a quick table of the cards, the balances, the interest rates and the due dates. Not pretty, but at least it is all out in the open. Involve your partner in the process. Work out a plan to pay them all off. Missing due dates can lead to credit score issues, delaying the ones with the highest interest rates are costly. Work out the priorities and make a plan.
Remember the pain of all of this, since you will need that for next year’s planning.
What is the funding gap?
What do you owe and what funds do you have available? Identify how big the gap is. That is a key first step to solve the issue. Take a look at timing, when are the next paychecks coming in and which bills are due when.
Let’s pay things off
The first few moves are obvious, using available cash to pay pressing bills, but then it gets trickier – how to fund the bills that have, well, no funding. Here is a list of key action moves:
- Do you have government Covid checks coming your way? Is there any action to get them sooner? Can you register online or otherwise speed up their arrival?
- If you are expecting a tax refund, can you get your return filed sooner to access that cash?
- Are there other bills that will let you delay payments or reduce payments without penalty? Call them and see if they can help you.
- What about that $1,200 you lent your brother-in-law? Might now be the time to collect?
- Is there some part time work that you could do to get some extra cash? Overtime at work, some Uber or Lyft driving, some retail shifts or some online tutoring? Can your partner help?
- Are there some gifts that you don’t like, don’t need or could live without? Try returning them for cash refund. As a minimum, could you return them for a store credit, then sell that online? Or use the credit for essentials that would otherwise need to be paid?
- Anything else around the house that you could sell on ebay, craigslist or offerup? As an example, maybe you are now a smartwatch devotee and no longer need some dress watches.
- What changes can you make to reduce your usual monthly spend and free up cash for the bills? Going vegan for a month, reducing take out and drive through food, turning down the thermostat and of course curbing new purchases can all help. Check out my other blog posts or Cashflow Cookbook for more ideas.
- It’s not ideal, but it might make sense to temporarily reduce payroll or other automatic savings provisions for 401ks, RSPs, company stock plans etc. to free up cash and pay off bills. Not a good long-term solution, but sacrificing a return of, say 7%-10% to pay off bills with an interest rate of 22% has some logic.
- Try calling the credit card companies. Explain that you are willing to do your best to pay, but you are overwhelmed with holiday bills and are wondering what they might be able to do to help. Worth a try.
- A final option is to take out a loan or use a line of credit to consolidate the bills and pay them off. Line of credit interest can be as low as 3 or 4%. The danger of course, is to take out one of these loans and then let your credit card balances creep up.
How to Eliminate Holiday Debt for Next Year
Of course, the best way to solve this problem is to never have it in the first place. Now that we have solved your current year problem, let’s start now to set you up right for the new year.
- Once you pay off your cards, call and cancel all but one. That’s all you need. Multiple cards are damaging to your credit score, make it easier to ring up more debt, complicate your monthly bill payment and record keeping processes and lead to more spending. Oh, and make your wallet fatter. The freebies and extra discounts from these cards don’t save you money, they just encourage more spending. One good reward card. You got this!
- If you are sweating your holiday debt, so are the rest of your family and friends. Now is the time to set an agreement that limits holiday gift value to an agreed amount. Start a family discussion, be candid and get it done. Whew!
- Or go a step further and switch to cashless gifts. Why not give vouchers to make a meal, do some house projects, kitchen cleanups, car washes or other services? A backrub for your partner? Or even promises for time together for a picnic or a hike?
- If the spending can’t change, then at least plan for it and save up. If holiday spending is, say, $1,000, then set aside $83.33 a month into a holiday gift account. Lots of banks now have set ups to let you save for a few different goals. Or just stash the cash somewhere.
- Pre plan your shopping so that you establish limits for each recipient and stick with them. Plan the gifts too so you can watch for sales, Groupon deals or discount coupons.
Hopefully that will set you on the right course and eliminate some financial stress. What other ideas do you have to help with holiday spending and debt? Let me know in the comments.
All the best to all of you for a wonderful 2021.
photo credit Freestocks at Unsplash
It’s been 6 months since I uncovered what appeared to be tremendous value in buying Costco Kirkland Signature 8 hearing aids at Costco.
There’s no fun in buyer’s remorse. Maybe it was a minor blunder like the no-return shirt that doesn’t fit. Might have been a big one like buying too much house. Or a whole stack of purchases of questionable utility that did some “new math” to your credit card balance. Sometimes it is about a product you needed, but you just ended up with a lemon. I recall a Volvo that I bought new a few years back. Let’s just say that I could find the repair department without consulting Siri. On my fourth or fifth trip in as many weeks to replace yet another mysterious greasy part, the technician attempted to calm me by pointing out that all of the work was under warranty. I lost it completely as I explained that I had a full-time job apart from my new role as Volvo repair department shuttler. So how do we avoid buyer’s remorse?
Don’t shop just to shop
The science of shopping has developed immensely. Every aspect of retail is fine-tuned to make you spend. The lights, colours, music, product placement and pricing are all there to fill your cart. Store sensors are monitoring where you move, what you buy and what you look at. Online your results are tweaked based on what else you have been searching on. Read some articles on the science of shopping. Heading to the mall with no real agenda is like swimming with sharks. Whilst wearing a Lady Gaga meat dress.
Set a cooling-off period
Marketers do everything possible to create passion for their products and drive urgency into your buying process. I know, I used to be one. If the item isn’t a non-essential luxury, give yourself a little cooling-off period to regroup. Consult with some friends to get their thoughts. Set a calendar reminder to see if the item is still important in a couple of weeks.
Do some research to avoid buyer’s remorse
Once you figure out that you really want, but also need, the thing, do your research. On home renovations, get three quotes and references. Not unusual to see a difference of 2 or 3-fold on pricing and likely the same on quality. A friend just got a quote for $34,000 to replace the boards on her 200 square foot deck. Hmm, about $1,000 in materials another $2,000 for labour and…a new car for the contractor. Shop around! For products, Amazon reviews are helpful even if you don’t buy from Amazon. Their process limits the reviews to actual purchasers and the large numbers help with accuracy. One of the all-time research bargains is ConsumerReports.org. Sign up for an online membership for $25/year. Completely unbiased reviews of everything from snow tires to sun screen, tractors and strollers. Saves you from being on a first-name basis at the repair department.
Find the best way to buy it
Or do you need to buy it? Could you rent or borrow one? Hard to have buyer’s remorse if you don’t actually buy it. What about a used one from eBay, kijiji, letgo, Tradyo or Craigslist? You can even set up alerts to get exactly the one you want. If it’s best to buy new (snow tires, beds, pillows or hockey mouth guards) do some online shopping. For car tires, as an example, you can go to 3 or 4 sites, enter your car details and have 3 quotes in 15 minutes. Try Kanetix for car, home and life insurance.
Skip the extended warranty
Think of it this way. The extended warranties are priced so that the company covers their costs for future repairs and adds a good 50% gross margin and that’s what you pay. The math says that over the long haul you are the loser. The profitability of extended warranties is always much higher than the product itself. The product may be good but the extended warranties themselves can lead to buyer’s remorse. That’s why the sales guys bite in and hang on like a mosquito until you buy one. Car warranties usually exclude all of the “wear items” like tires, shocks, maintenance type repairs and brakes. Have a look at where you spent all of your repair dollars on your last car. Hmm. Skip the extended warranties, build up a cash cushion and self-insure on your cars and electronics.
And here is a bonus point:
Maintain your new purchase
Things with moving parts have a maintenance schedule for a reason. When one part wears or breaks, it tends to screw up all of the parts around it. Making them fail and you poorer. Skipping regular maintenance is a great way to save. Like only taking birth control pills every other day. (Kidding, don’t sue me all you new moms and dads.) Do the maintenance on schedule.
What buying tips do you have? What purchases do you wish you could re-do?