Why your post-holiday financial hangover will be worse this year

OTTAWA — The holiday season comes every year and so too the warnings of overspending, but the consequences of a financial hangover this year are growing compared with just a few years ago.

As the Bank of Canada continues to raise its key interest rate target, the cost to borrow using variable-rate loans like home equity lines of credit has climbed higher and is expected to continue to rise next year.

“Where we are in a rising interest rate environment, it becomes even more critical to manage your budget effectively,” Jennifer Auld, a district vice-president at TD Canada Trust, says.

READ: 5 ways to cure your Christmas debt hangover

The holiday season and all of the costs that come with it can be a pricey one and Auld says setting a budget and sticking to it are key to preventing a financial hangover come the new year.

Planning your holiday spending means not just budgeting for gifts for loved ones, but also the myriad other holiday expenses.

“The first step is really figuring out what your budget is and adding five to 10 per cent to that because things will inevitably pop up over the holidays,” Auld says.

She says it means making a list of who you want to buy a gift for and how much you can spend, but it also means planning for the costs of extra entertaining that comes with the holiday season.

“I think you can often get caught up in the magic of the season and it is tempting to overspend when you are out shopping, but if you have a dollar value in mind per person when you’re out shopping I think it is easier to stay on track,” she said.

Scott Hannah, president and CEO of the Credit Counselling Society, says you need to be realistic about what you can and cannot afford.

Hannah says you have to make the choices that are right for you and your family.

“You can’t be all things to all people,” he said. “You have to make some choices. You can’t afford to do everything.”

Extra spending in the holiday season may include extra lunches or dinners out with friends and co-workers, a babysitter so you can attend a special concert or an extra holiday donation to your favourite charity at the end of the year.

“It’s from entertainment, it could be from travelling, it could be additional clothing because you’re going out and entertaining, it could be a number of things,” Hannah said of the debt that people rack up.

READ: An acceptable way to get rid of unwanted Christmas gifts

According to a survey done earlier this year for the Retail Council of Canada, suggested that 65 per cent of Canadians plan to have a firm budget for spending this holiday season.

The same survey suggested roughly two-thirds of Canadians plan to spend about the same amount this year as they did last year with the average being $675.

Auld says there are a number of money management apps that can help you keep track of what you’ve spent to help stay on budget and help save you from the financial hangover.

If you do go over your budget, she says it is key to have a plan to repay your debt as quickly as you can and start preparing yourself for next year.

Hannah says if you’re having financial difficulty now, you should seek help ahead of the holiday season rather than waiting until the new year when the holiday bills start to come rolling in.

“Nothing is worse than going through the holiday season knowing you’re in debt, you’ve got problems and you’re going to have to face them in the new year,” he said.

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