Written by Vanessa Santilli on Dec. 20 on CreditCards.ca
With 2014 around the corner, many Canadians are thinking about New Year’s resolutions, and one of the most popular resolutions is getting finances in order. A few simple steps can help you improve your financial situation, but be prepared to commit to your decisions all year, not just the first few months.
“The new year always brings with it a sense of a fresh start,” says Scott Plaskett, senior financial planner and CEO at Ironshield Financial Planning. “Take this positive momentum and simply plan out your credit card strategy for the new year and you’ll find that, come December next year, you’ll be in a better, more confident financial position as a result.”
Here are seven ideas to help improve your financial situation in the new year.
1. Pay off at least one card
“If you carry balances on more than one credit card, commit to focusing on the highest interest-rate card first and paying it off as soon as possible, or simply get the smaller balance card paid off as soon as possible,” advises Plaskett. “Whichever keeps you motivated is key.”
2. Cancel department store credit cards
“[Department store credit cards] often carry extremely high interest rates,” says Plaskett. “Commit to no more than two credit cards for your needs and then focus on increasing the credit limit on those two cards.”
3. Ask for a credit limit increase
“It’s better to increase an existing credit card’s limit than it is to obtain another credit card,” Plaskett explains. “Adding another credit card to the mix does two negative things. First, it lowers your average age of credit cards, and second, encourages a credit inquiry on your file — both of which have a negative impact on your credit score.”
It can be a good idea to ask for an increase before you need it rather than waiting until something urgent comes up and you risk the lender denying you more credit, Plaskett says.
4. Set goals for yourself
Do you want to buy a house? Save for retirement or an exotic adventure? Or just have the peace of mind that comes from being debt-free? Keeping your goal in mind can help you budget for the long term and overcome short-term temptations to impulse-buy.
“Overspending can be avoided by making sure that your lifestyle expectations are in line with your income,” says financial consultant Charlie Min. “It [is] important to set aside enough regularly to reach your goals.”
5. Pay attention to your high interest credit cards
Minimize the usage of a high-interest credit card, adds Min.
“Or better yet, cut it into little pieces,” he says. “Credit card debt is very expensive. You definitely want to stay on top of your debt by paying off high-interest and non-deductible debt first.”
6. Take stock of your financial situation
“Map out your finances and give yourself a clear picture of how much you owe on credit or to other lenders,” says Mark Rosen, of BDO Canada Limited. “It’s also important to look at how much you’ve saved and invested and how much you need for the year,” he adds.
To do this, it might be helpful to use the Financial Consumer Agency of Canada’s new Financial Goal Calculator, which allows users to see how long it’s going to take them to pay off their debt at their current payment rate, along with separate sections for specifics savings goals and retirement.
7. Freeze your credit cards — literally
If you don’t want to give up the security of a credit card, but are easily tempted to use it, put nonessential credit cards in a cup of water and put the whole thing in the freezer, suggests Plaskett.
“This will not damage your credit cards, but will put enough time between you and your next spontaneous, big purchase and give you a cooling off period [to think about your purchase] because it will take time for you to melt the ice to get the cards out.”