Tackle holiday debt early, says expert

A Moncton-based financial adviser is urging consumers to attack any credit card debt they may have racked up over the holidays.

Interest charges can add another 50 per cent to the total cost if you take a long time to pay off your bill, said Dan Noel.

According to the latest figures, the average Canadian owes almost 165 per cent of their disposable income, said Noel.

That's close to what Americans owed in 2007 before the big crash and makes a person extremely vulnerable to an economic shock, such as a hike in interest rates or losing their job, he said.

"A lot of consumers find themselves in that situation, 'I can only make the minimum payment onto my credit card debt so I'm going to go ahead and do that.' You'll never really pay the debt back if you're only making the minimum payment."

For example, Noel explains that making a $250 minimum payment per month on a $10,000 credit card debt, with 18.5 or 19.5 per cent interest, will take about 63 months to repay and the interest costs will be $5,668.

"Attack the highest interest credit card first and do the minimum payment on the other two. It's like a snowball debt repayment," said Noel.

"Get down to one credit card, zero balance."

He also suggests using a credit card without an annual fee, keeping it at a reasonable balance and paying it off every month.

Financial freedom is a great stress reliever said Noel.

He did a study last year examining population dynamics and spending habits. He found that because credit has been so easy to get and interest rates low, people now use credit for consumption instead of for assets that will increase in value.

"When we're putting the movies and popcorn tonight on my credit card and then paying for that for the next several months, it just doesn't make sense. Our whole idea of credit and debt and money has shifted — and not positively," he said.

Bankruptcies are down in Canada, but consumer proposals — making deals with creditors to repay debts — are up. Noel said people are realizing they have to do something with their personal financial planning.