After a well-deserved vacation, you’re disillusioned when you receive your credit card statement. If it’s too late to turn back, there’s still time to take back control of your budget.
When you’re on vacation, it becomes harder to resist the temptation to spend money. Quebecers are not immune to this trend and also plan to spend an average of $1,043 per person this year, compared to $848 in 2022, according to the annual CAA survey.
If you ran into debt while on vacation, these tips will help you pay it off more efficiently and get your budget back in order.
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1. Reduce the weight of interests
Many vacationers use their credit cards to purchase airline tickets, hotel accommodations, restaurant meals and activities. That’s understandable, because it’s the type of credit that’s easiest to access and the one you need to make a reservation almost everywhere.
The problem reminds licensed insolvency practitioner Pierre Fortin, president of Jean Fortin et Associés, that interest rates on deposits are also very high, often close to 20%.
This concrete example will convince you: If your credit card balance (interest rate 19.99%) is $4,000 after your vacation and you only make the minimum payment (4%) every month, it will take you 12 years and 6 months to pay off yours Debts. It will also cost you $2,752 in interest costs.
Do you decide to repay $200 per month? So it will take two years and one month to pay off the balance and you will have paid $905 in interest.
“A good option could be to pay off the balance using your line of credit if you have one, as interest rates are much lower than credit cards,” he advises.
Be careful because then you have to show discipline to reset the value to zero because with margins the only monthly payment is the interest charge. So in the end we can achieve a balance that lasts forever…
2. Take a card with a reduced rate
Another option if you don’t have access to a connection is to get a low-interest credit card and transfer the balance to it. Several issuing companies offer products with interest rates lower than 12%. In addition, great special offers are often offered for balance transfers, which even cost 0% or less than 1% interest in the first few months.
3. Pay back in the correct order
Do you have balances on multiple credit cards? Pierre Fortin reminds us that the best way to do this is to start with the interest rate with the highest interest rate. Then you can move on to the next one.
To make things clear, make a list of your card balances, due dates, and interest rates, then prioritize them.
4. Reconsider your budget
In order to clear your balance as quickly as possible, you will also need to free up more cash for this repayment. There’s no secret to achieving this: you have to work within a budget. “If you know exactly what your expenses are, you can determine which items you can reduce,” explains Pierre Fortin. Variable expenses are usually those that are easiest to control, such as trips, leisure activities, restaurants, clothing, etc.
5. Review your consumption choices
The start of the school year is approaching and with it comes many costs associated with returning to school. You’ll need to make decisions and perhaps tighten your belts to get through this period without further debt while maintaining your repayment goals.
In general, Pierre Fortin notes that more and more Quebecers need to be financially prudent. “People who have not had money problems and earn a good salary find themselves in more precarious situations. “Just by increasing the interest rates on their mortgages and car loans, their debt ratio has risen radically, even if they have not changed their spending habits,” he warns.
ADVICE :
· Plan your vacation at least a year in advance and set aside an amount each month to implement your plan. When the time comes, you will have saved the necessary amount and will not have to resort to a loan.
· To prepare your budget, a good tip is to use the tools offered online, such as the Financial Consumer Agency of Canada’s budget planner or Jean Fortin’s.