The holidays can bring many happy surprises, but one package you don’t want to open is a bill you can’t pay after seasonal spending splurges. Having a spending plan — and a spending limit — can help you keep your finances on track during the holidays, or when you’re on vacation.
Sticking to the plan can reduce your stress and help you avoid extra bill payments down the road. But watch out for high-interest payment plans. If you buy a $20 hat to give your friend, a high interest payment plan could make that price tag increase past what you were prepared to spend.
Use the spending habits calculator to see how changes to your spending can impact your budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition and help you save more of your money.
1. Use your credit card wisely
Most Canadians pay off their credit cards each month. However, holiday spending can put a strain on how quickly we can repay, because it’s a time of increased spending. Most lenders offer an interest-free grace period before you need to pay your card balance, but after that time, you’ll owe interest. This will add to the total amount you ultimately pay, and increase the balance owing in later months.
If you don’t know how much interest your credit card charges, or when your statement balance comes due, now is a good time to check. If you can pay using cash or e-transfer instead, this could reduce your reliance on credit. And, if paying with a credit card is the best option for you, make a plan to pay it off as soon as possible to reduce future debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition.
2. Be cautious of buy now, pay later plans
Some retailers offer buy now, pay later plans, which allow you to make instalment payments or defer the payment entirely. These are essentially a kind of loanLoan An agreement to borrow money for a set period of time. You agree to pay back the full amount, plus interest, by a set date.+ read full definition, that breaks up your purchase into installments that you pay off over time.
Buy now, pay later plans can be very tempting, but always read the fine print. Some services will run a credit check before allowing you to use it. There may be interest fees or penalties for missing a payment. The interest can be as much as 25% or more for some services, which is higher than the average credit card.
Check in on your Needs versus Wants to make sure your spending priorities are taken care of.
3. Beware of installment loans
There are other ways to borrow money, including using your line of creditLine of credit An account that you set up with a financial institution (often a bank) to borrow money. It lets you borrow what you need, when you need it, up to a certain limit.+ read full definition or taking a loan from your bank. Loans often have lower interest rates than credit cards.
However, alternative lenders may offer tempting installment loans. These are short-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition loans repaid later with regular payments. Installment loans are often advertised as a quick way to take care of short-term expenses. In reality these loans can charge interest rates significantly higher than credit cards. If the loan is repaid over several years, instead of right away, the interest could even add up to more than what you borrowed in the first place.
Always know what you’re signing up for before taking out a loan.
Try out our calculator to see how long it will take to repay credit cards and debt.
Plan ahead for next year
If you feel stressed about money around the holidays, use it as an opportunity to plan. Identify where you spent more than you planned and use that to inform your spending plan for next time. Put aside a savings accountSavings account A bank account intended for depositing funds. Pays interest and lets you withdraw cash at any time.+ read full definition and set up a weekly or monthly transfer so you’ll be covered next year.
1. Read the fine print. Know how much interest you’ll be charged and when payments are due.
2. Make a spending plan if you don’t have one.
3. If you need to repay a loan or credit card balance, make a plan to repay and reduce the interest you’ll pay in the future.
4. If debt repayment is causing stress, seek professional support to find a solution that is right for you