The festive holiday season can carry a warm, but fast-receding glow. The weather outside is still frightful and now, in the cold January light, the bills are starting to roll in. Tis the season of holiday debt – how do you get out from under it and back on your feet?
“First, if you have overspent on a high interest credit card, see if you can consolidate the debt on a lower interest card or a line of credit,” says Glynis Bass CPA, CA, CIRP, with A. Farber & Partners Inc. in Toronto. Consolidation should not, however, include the more expensive temptations that are out there. “Avoid payday loans at all costs.”
Victor Fong, CPA, CMA, and principal at Fong and Partners Inc., which specializes in insolvency and bankruptcy, agrees it is of primary importance to pay off the debts with higher rates of interest first, adding: “You’re going to have to pay off the minimum on the cards you owe money on but, if you have money left, that surplus should be allocated to the card with the highest rate.”
Until holiday debts are cleared, it’s important to limit spending on other things while allocating those saved funds to paying off what is owed. Sadly, this is not the time to indulge in trips, restaurant outings or other costly indulgences. So skip the trip to the movies and watch some free TV; make a home-made meal and avoid the fast food, never mind the haute cuisine.
For most people, a disciplined approach to paying debts while limiting expenses will eventually result in return to fiscal stability. However, this doesn’t work for everyone, in which case, it’s often time to bring in the professionals.
“Seek the advice of professional who deals with,” says Glynis. “A trustee in bankruptcy can put together a consumer proposal for all unsecured creditors often to settle for less than the full amount owing. It is legislated by the Bankruptcy and Insolvency Act. If that is not viable, the option of last resort is to consider filing for bankruptcy.”
Victor agrees people should go to a bankruptcy specialist when there seems to be no way out of their debt situation.
“However, before doing so, a good first step is to consult with a credit counsellor, such as the ones with Credit Canada – a not-for-profit agency. A credit counsellor will facilitate a debt management plan for creditors who cannot pay on timely basis. They seek a break on the interest and more time to pay off the debt so the person can pay off all of the debts in full. It will have a detrimental impact on your credit rating but not as detrimental as going bankrupt.
“If a person cannot fulfill a debt management plan, then the credit counsellor will usually refer the client to a trustee in bankruptcy,” he adds.
That said, most people can avoid bankruptcy and eventually pay off their holiday debts. In that case, both Victor and Glynis agree that the important thing is to remember the distress that comes with paying off debt and learn from it. Be wise with your money, plan and manage credit card use so that you can bring in the New Year with money in your pocket.
Brought to you by the Chartered Professional Accountants of Ontario.