“I spent too much money last Christmas on gifts and parties. I had expected a good bonus cheque which never materialized. Now I’m stuck with over J$60,000 in credit card debt, and I don’t have a clue how I’m going to pay it. Help!”
Christmas is a time when even the most disciplined shoppers throw caution to the wind and reward themselves for a year of frugal living. Those who live to shop go into overdrive and buy all the must-have and must-give items without a thought for January.
You learnt the hard way not to count your chickens before they hatch. In order to be a good money manager you must earn a dollar before you plan to spend that dollar, as spending money that you don’t have will only land you in debt.
Before we try to find ways to get you out this debt, let’s look at the true cost of your Christmas spending spree. You admit that you spent too much money. When you look back at the things you acquired, was it worth it?
Do you even know if your gift-giving was truly appreciated?
If you admit that there were better uses for the J$60,000, then you have to check your priorities. Sometimes we have to sacrifice on consumer spending in order to achieve what’s truly important- like the down payment on a house, or higher education to earn more money.
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If you had invested that J$60,000 at a net interest of 8% per annum, you would have doubled your money in just over eight years. What’s more, if you had invested it at an average rate of 12% in a tax-free account, added an extra J$2,000 per month, and increased your monthly savings by 10 per cent each year to stay ahead of inflation, your investment account would grown to over J$300,000 in five years!
So what can you do to recover now that you’ve already spent the money?
1. Cut back on privileges
Extravagant spending has its consequences. If you’re serious about getting rid of this debt faster, you may have to reduce spending on some things you enjoy. If you suspended your cable service for six months, it would give you about J$12,000 towards debt reduction. Cut out the movies or parties for awhile and use that money to pay down the credit card bill.
2. Try to lower your interest cost
Credit card debt is really a very expensive loan. If possible, try to get a lower-interest loan from a financial institution and pay off the credit card. The lower interest rate on the new loan will help you to pay off the debt faster.
3. Find creative ways to get more income
You’ll have to be resourceful and think of as many ways as possible to raise this J$60,000. Check with the National Housing Trust (NHT) to see if you’re eligible for a contribution refund. Can you earn overtime at your job? Do you have any hobbies that can be turned into income-earners? I know of a lady who earned nearly J$50,000 over Christmas by baking fruit cakes and selling them to co-workers and friends.
You also need to start planning for your 2007 holiday spending from now. First, with the help of your budget, decide how much you can comfortably spend on gifts and entertainment this year. Then, divide this amount by twelve, and start saving the average amount monthly until you reach your target.
With a smart savings plan you can ensure that next year January you won’t be singing the Christmas bills blues.
Copyright © 2007 Cherryl Hanson Simpson. No reproduction without written consent.
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Originally published in The Daily Observer, January 25, 2007
Cherryl is a financial columnist, consultant and coach. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl