Holiday spending hangover kicks in

As if January wasn't depressing enough, debt-laden Canadians could be in for a financial shock this week when they get a stack of holiday bills.

"Without a doubt, there are a lot of Canadians who overspent and are in desperate need to get back on track with their finances. You don't want to go into next Christmas with bills from the last one," says Laurie Campbell, executive director of Credit Canada, a non-profit agency that offers counselling to the financially distressed.

Early indications are that Canadians are starting 2010 with a spending hangover. The holiday buying came despite the Bank of Canada's warning of higher interest rates, which will make things more difficult for households carrying record amounts of debt.

"This is a good time to jump-start your financial situation [and] recommit to making some good financial decisions," Ms. Campbell says. "Interest rates are likely going to increase in mid-2010, so you want to take advantage of this low-interest-rate environment today."

With that in mind, she gave us these five tips on how to dump that credit-card debt:

1 Get creative with your household bills. Did you know that you can save more than $300 a year when you switch to a no-fee bank plan? Renegotiating new terms with your cable, phone and Internet provider can leave an extra $400 a year in your pocket.

2 Budget is not a dirty word. Look for ways to cut spending in your everyday life. Can you bring lunch to work? How about using public transit to avoid that pricey parking expense? Ever consider the cost of where you shop and how much more expensive it is than a cheaper "no-frills" place? After you cut spending, take that new-found cash and dump it on those high-interest credit cards.

3 Pay off the highest-interest credit cards first. Retail cards have an interest rate of 28.8 per cent. Most bank cards hover between 19 and 20 per cent. Do the math (if you need help visit http://www.creditcanada.com/debtCalc.asp). If you are making only the minimum payment on your cards each month, you are actually paying more than three times the value of everything you buy.

4 Get a line of credit or consolidation loan. It will be at a much lower rate, and that will help you pay off your cards. To help you concentrate on getting rid of your debt, cut up all your cards except one all-purpose card reserved for emergencies. You could try not using any credit cards for three months. This will help place you firmly on the road to being debt-free.

5 Come up with a plan and stick to it. At least 80 per cent of the merchandise paid for by credit card are impulse purchases. Ask yourself: Is it something you planned to buy? Is it something you absolutely need? Is it something you can pay off in a reasonable time? Do you have a plan of action to pay it off? If you answer 'no' to any of these questions, put your card away.