Did you have a lot of fun with Christmas? Did you have maybe too much fun? According to the data published on NRF.com, holiday spending increased by 3% in 2015. If you went beyond your budget last season, that is bound to catch up with you.
You’re back at work now, reality has set in and you’re deathly afraid that when those credit card bills roll in you’ll be in a world of trouble. You can help with that Christmas debt hangover by thinking about how you will pay it off and how you could get your money to work harder for you so that you won’t be facing the same situation when this Christmas rolls around.
Get your mortgage interest rate reduced
If you’re typical your biggest monthly bill by far is your mortgage loan. Interest rates are amazingly low right now but it’s clear that this will not continue much longer. If your current interest rate is 5% or higher then now would be a great time to get a new loan and pay it off. As of this writing, it’s possible to get a 30-year fixed rate loan for 3.63% (APR of 3.75%) and a 15-year fixed loan for as low as 3.2% (3.6% APR). Make this move and it’s likely that you will save several hundred dollars a month. And there are other things you could do to save money. You could make your mortgage payment every two weeks instead of once a month or, as noted above, get your term reduced from 30 years to 30 or even 15 years. If you’re feeling stretched and want to have payments you can better afford this is something you should definitely do.
Pay off any high-interest debts
Are you making the same mistake as many people, which is making just the minimum monthly payments on your credit cards? According to the data published on TheSimpleDollar.com, 53% of cardholders who carry a balance pay the minimum requirement. What you should do instead is make a plan for paying off the full amount as soon as possible because what that debt will cost you over the long run will be much greater. As an example of this, if you have a credit card with a $5000 balance at 15% and make a minimum monthly payment of $150 it will take you 44 months to pay it off at $5000. But if you could increase that payment to $250 a month you would have the debt completely paid off in just 24 months.
Save money to create a buffer
Do everything you can this year to build up a buffer in the form of an emergency savings fund so that when times get tough there will be money there to help you through it – whether it’s because of a serious illness, a job loss or a particularly nasty divorce. A six-month buffer would be best but if that seems too intimidating try saving enough to cover at least three months’ living expenses. Once you’ve created that buffer fund put it somewhere where it will be hard to touch like an online savings account. It’s likely that you’ll go through dips and peaks – just like the rest of us – but if you have an emergency fund or buffer you could smooth them out and without having to borrow more money. And if you are forced to dip into those funds for some reason try to replenish the money as quickly as possible.
Ensure you’re protected
A fact of life is that things go wrong. And for some strange reason whatever can cause you the biggest problem typically goes wrong first. This is where you need insurance to protect yourself from these unexpected problems. This means you absolutely need to have your house and automobile insured. If you are to have an automobile accident in your car is an insured you would have to find the money somewhere else, which means you could be putting yourself in trouble by borrowing from second or third tier lenders which can cost an arm and a leg. Shop for your insurance just as you would shop for a new laptop computer. It will take time to check out three or four alternatives but it’s the only way to get the best coverage at the lowest cost. This is it definitely where some expert advice could be helpful. For example, you might go to an independent broker that represents several different insurance companies, as he or she should be able to give you good and fairly unbiased advice.
While you should build up your emergency savings fund first the minute you get this accomplished need to think about saving for retirement. If your company offers a 401(k) and you haven’t yet signed up you need to do this immediately. This is especially true if it offers matching funds, which is basically free money. If your company doesn’t offer a 401(k) then open either a conventional or Roth IRA. The difference between the two is fairly simple. The money you contribute to a conventional IRA is pretax, which means you don’t have to pay tax on it at the time but you will when you reach age 55 and begin making withdrawals. In comparison, your contributions to a Roth IRA are taxable but when you reach 55 and begin withdrawing the money it’s tax-free. The maximum amount you can contribute to an IRA this year is $5500. Don’t feel bad if you can’t contribute this much. Contribute whatever you can and then plan to step up your contributions as your income increases.
Think about a Christmas fund
It also wouldn’t be a bad idea to start a Christmas fund to make sure you don’t end up piling on debt this year. When I was young banks offered what was called a Christmas Club where you deposited a certain amount each month so you’d have money saved to pay for Christmas. Christmas Clubs were great for banks because they didn’t pay any interest. They’re gone now and probably for that reason. However, you could have your own by creating a special savings account and then have a certain amount of money automatically transferred into it from your checking account every payday. If you save were to just $30 per payday you’d have somewhere around $660 when Christmas rolls around. Wouldn’t it feel pretty good to know that your Christmas is prepaid and that when January 2017 rolls around you won’t have to dread opening those credit card bills?