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Household

How to Eliminate Holiday Debt

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.

Gordon

photo credit Freestocks at Unsplash

 

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buyer's remorse
Household

5 Steps to Avoid Buyer’s Remorse

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?

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do it yourself savings
Household

Do It Yourself Savings. With Help!

The boards were rotting and turning black in spots. A racoon tribe had been digging into the wood for unseen treasures. Some of the planks had split open and a previous deck expansion had made the surface look a bit like a patchwork quilt. Eventually most of the usual husband denial tactics failed and it was time to actually get the deck rebuilt.

Getting the work done by a pro would cost a good $8,000. Enough for a fun trip, 1/3 of a year of university costs, some debt pay down or savings. A do-it-yourself deck replacement was an option, but the thought of prying out 250 square feet of old, nailed-on 2×6’s and replacing some of the framing underneath was a bit daunting. The deck is an irregular shape which would lead to  some tricky angle cuts. The clock was ticking though, as the deck had to be ready for our daughter’s 19th birthday.

Was this a candidate for do it yourself savings?

I costed out the materials and everything could be had for just over $1,000. Time to call my buddy “Rip” – a retired high school shop teacher turned home renovator and get a sense of what he might charge to get the work done. I then offered up myself as a helper, unsure as to whether that would raise or lower his price and whether I would speed or hinder his progress. He agreed to take me on as an apprentice and we booked a weekend for the work. I ordered the materials and had everything on site ready to go. Rip’s skills gave me the confidence that the job would end well. How can you go wrong with a home renovator named Rip? The greater concern was the 56-year-old “apprentice”.

Rip arrived brandishing the nation’s largest pry bar and a pickup truck filled with enough power tools to make Mike Holmes blush.  We filled fresh mugs of black coffee to add some workman vibe, then intimidated the planks off with the monster pry bar. By noon, we were down to the bare framing. Which was great, other than trying to get around on a deck with no planks, 10 feet off the ground. Rip had a good laugh at my knees knocking, even though we had appropriate safety measures in place.

I tried to minimize my interference while he worked

After lunch, we added some more framing underneath and then started screwing in new deck boards in a “frame and panel” approach that had a “frame” of 3 planks all around the perimeter, then boards installed in the usual way inside the frame. This design meant a better looking deck, but more work.

On Sunday, lots more coffee and some tricky angle cuts, which were no problem for us.  Actually, they were no problem for Rip and I tried to minimize my interference while he worked. After a while, we got into a rhythm; hauling planks, cutting and screwing them into place.

By Sunday night, the sun was low in the sky, the deck was beautiful, we were covered in sawdust and aching muscles.  We loaded the last of the tools into Rip’s truck and high-fived our success. A big pile of wood offcuts was next to the garage. I learned a bunch of new skills from Rip and he learned a few old jokes from me. I swept the new deck as Rip’s truck backed up our driveway.

The do it yourself savings weren’t the biggest part of the story…

The deck replacement was a success and saved thousands vs hiring out the whole project. But the do it yourself savings weren’t the biggest part of the story. The fun of learning from a pro, and of building something with my own hands led to a great sense of satisfaction. And there is something about a couple of days of hard work under a beautiful blue sky with an old friend.

Learning some DIY skills can provide major savings, the fun of learning and the buzz of accomplishment. Working with a pro helps you learn how to build things to code and work safely. Skills learned on one project let you take on the next one with confidence.

Where do it yourself savings aren’t an option, always be sure to shop around for price and quality – it works on just about everything  – even veterinarian bills. Pay special attention to recurring monthly costs as I did in a post about commuting costs. Use the freed up cash to pay down debt or build savings.

What do-it-yourself projects have you tried and did you get help from a pro, a book or a YouTube video? Let me know!

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