So, you overspent and overate. Your finances are feeling as tight as your fave pair of jeans. You said you’d stick to your holiday budget but then you found the new Snapchat Spectacles on eBay and obvi needed to buy a pair for your bae—okay, and maybe one for yourself too.
You blew it. But instead of commiserating in a pool of self-loathing and anguish (so dramatic), face your spending hangover head on with our New Year's money remedies. No, we’re not going to recommend ‘hair of the dog.’ (Sorry.)
Over the next few weeks, we’ll hook you up with our easy-to-follow spending tips to help get you back in the black, and on track to ball out in 2017. And by ball out, we mean spend and save like a responsible adult. 😜
(AKA) How to break the credit card debt cycle with an installment loan.
You had every intention to keep your holiday budget in check. You made a list, checked it twice, and even scaled back your other spending leading up to December. But then that extra space on your card + the temptation of all those deals got the best of you. And, hey, you had good intentions; your Dad for sure needed that sweet drone to fly around the neighbourhood, right? 😛
Add in festive cocktails with coworkers, that ski pass you had to have, and the gifts you (accidently) bought for yourself, and your credit card bill is probably as tight as your post-holiday pants.
No point in dwelling in the past; it’s time for a game plan.
Here’s our steps for consolidating your holiday credit card debt, and getting on track to ditch the debt for good.
Credit cards are considering revolving debt. Meaning when you pay them down you can keep borrowing against them.
The thing about credit cards is they make it easy and convenient for you to stay in debt. When you pair that with the psychological high of copping the latest pair of shoes / buying gifts / whatever your poison is, then it’s not the interest rate you should be worried about anymore.
Because let’s face it, whether you get a 5% or 30% rate, you’re probably going to shop and borrow what you paid back the same way. It’s the perfect recipe for ongoing debt.
Unlike credit card debt, an installment loan would has a specific term and requires you to pay back interest AND principal in every payment, which means you have a set deadline for paying it off and getting out of debt. Actually paying off that loan is what will help you pay less interest. We’re taught to only focus on interest rates, but we should be rewiring our brains to think about the type of credit product we’re getting and the total cost of borrowing instead.
For example: Say you have a credit card with $10,000 on it at a 19.9% interest rate, and you’re only making the 2% minimum payment each month. At that rate, it’ll take you 83 years to pay it completely off. Yes, really.
Even if you’re able to chip away and pay it off over the year, you know temptation is likely to rear it’s ugly head and make that revolving credit look appealing again. There always seems to be something we ‘can’t live without’.
If you were to consolidate that same $10,000 debt by paying it off with an installment loan, you could be out of debt in as little as 5 years.*
Once you’ve consolidated your revolving debt with an installment loan, like our MogoLiquid, make sure you stick to your payment schedule and you’ll be out of the hole in no time. That’s actually super easy if you choose a MogoLiquid loan because we’ll send you alerts with regular reminders about payments to help you stay track.
Now, don’t go chopping up that credit card. Closing a card, or leaving it inactive can negatively affect your credit score. Instead, use our #NetflixAndChill tip: Link your credit card to your Netflix account for your $9.99 monthly subscription charge, then set up an automated payment from your bank account to ensure it’s paid off every month. Lastly, throw the card in the freezer to give it some much needed chill time.
This tip also helps with your utilization ratio (which makes up 30% of your credit score). Your utilization ratio is your level of indebtedness, or how much of your total available credit you’re using. For example, if your credit card limit is $1,000 and your balance is $1,000, your utilization ratio is 100 per cent — and this not good in the eyes of the credit bureau. You always want to keep your utilization ratio under 70 per cent.