Business | Your Money

Common cents

It’s the time of reckoning

  • Cleofe maceda
  • Published: 17:59 January 20, 2013
  • Gulf News

It’s been weeks since you ate the last bit of pudding and put away the empty bottles of bubbly and festive décor. All your guests have long gone home and all that’s left is the memory of last month’s revelry. Now it’s time to take stock and face the aftermath of the holiday season.

For those who were more naughty than nice with their wallet last month, January is a period of reckoning. It’s the time of year when bank statements and bills arrive and deliver the verdict, whether the gift shopping binge, family get-togethers and parties have left a gaping hole in the bank account and the credit card in tatters.

If it turns out you’ve done more harm to your pockets than good, don’t panic. You can still start this year on the right financial foot. Consider the following tips for getting back on track with your finances:

Check and balance

A good way to start is to gain more clarity about your financial standing. Gather all your bills, bank statements and receipts. Draw up a list of your holiday spending, debts to pay, including how much savings you have left, your income and regular expenses. Your first priority is to find out whether you’re carrying more debt load than before. You can do this by adding up all your debts and calculating what per cent that is of your annual earnings. The sum of your debts should ideally not exceed 20 per cent of your income. If it’s more than 20 per cent, it’s imperative that you find a way to bring down your debt load.

Pay down debts first

Don’t delay it. Get right down to the business of clearing your holiday debts, particularly the interest-bearing ones. The more you wait, the more likely you will accumulate fees and charges.

The National Endowment for Financial Education (Nefe) offers this advice: “Determine the debt with the highest interest rate and put any extra cash toward that obligation first, as this account is costing you the most money. Once you have paid off the largest balance, continue paying the same amount toward the next account on your list, prioritizing by the next highest interest rate.”

If you have multiple credit cards and it’s not possible to pay each one of them, consider negotiating with your bank/s to lower the interest. Another good option is to consolidate your credit card debt or transfer the balance to another bank that offers lower or no interest at all. The ideal solution is to find a bank that lets you pay back your dues without interest. However, bear in mind that such an arrangement often happens only when the borrower commits to a shorter repayment term.

Trim down

Look more closely at your monthly expenses. There are definitely certain items there that you can live without. Perhaps you can stop going to the gym and exercise at home or outdoors instead. Or maybe you can trim down your salon visits and out-of-home dining, stop driving your car and go slow on retail therapy. Whatever level of income and lifestyle you have, there are plenty of ways to cut back on monthly living expenses. All you need is a little bit of sacrifice and patience. This will just be temporary. Once you get past the debt repayment period, give yourself a pat on the back and maybe you can start driving your car or watching movies on weekends again.

Stay away from credit

Remember that it is spending money you don’t have that put you into trouble. Don’t fall for the same mistake again. Discard all your credit cards and make it a point to go shopping with cash only. If you can’t afford to buy something now, forget it. Most likely, you won’t be able to afford it later, either. It’s better to save a little each month until you have enough to pay it in cash up front than to spend months or years paying the hefty interest rates.

Save for the next holidays

If you want to avoid another round of holiday debt, start planning and saving early. Decide how much money you will need for gift giving, parties and family visits, then divide that amount by 12. Let’s say you will need Dh7,000 to cover all the costs. You have to save a little over Dh580 every month to reach that spending budget. Put that amount in a saving pot every month and don’t touch it until around Christmas time.

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