Holiday budgets help make for a happy New Year!

Holiday budgets help make for a happy New Year!

It is that time of year again where just about everyone’s focus turns to the holiday season. And even though there has not been much to celebrate in 2020, the holiday season always seems to lift the spirit and the charge cards for most of us. The immediate issue with using credit cards to purchase your holiday gifts is that the bills roll in later. And with the hustle and bustle of the season, it is really easy for many people to lose track of their spending. Even worse, most people have come to accept the season’s increased level of spending and are resigned to the fact that they will be spending the first part of the new year paying off or down those debts.

But does it need to be this way? I don’t think so. I think with a little for sight and thought and a good dose of discipline, we can minimize the financial snowstorm the holiday spending season brings. How can we accomplish this? Simple, by creating and sticking to a holiday season budget.

Creating a budget

Now we have reached the meat and potatoes of our subject matter, creating a household budget. A household budget and not just s budget for holiday spending? Yes! Granted we are discussing how to keep holiday spending under control; but we must accept that holiday spending is directly tied into our larger household budget. Where do you think the money to pay off the bills for all those presents is coming from? Your household budget! Now I know what you are thinking that this seems overwhelming and daunting. And to be honest, yes it can be. But you are not in this alone; there are ways to get help. I mean, that is why you are reading this blog right now, to get help, correct? Rest assured that I wrote this blog to do just that, help. So, before I go onto to a little fuller explanation about creating a budget; feel free to download the one that I created. There are two versions, one you print out and another that is an excel worksheet. Use one or both! Now I will quickly go over the steps to creating your household budget.

Step 1: Collect all your outstanding bills and sources of income statements. It is vital that you account for every penny coming in and going out!

Step 2: Using our worksheets (or you own ledger system) make two columns (one for income and one for debts) and list the type and amount of each monthly income and debt source.

Step 3: Total each column and compare them. Are you in black (have extra money left over each month) or in the red (spending more than you are making)?

Step 4: Make your plan. If you have extra money each month, how much will you set aside to pay off your holiday credit card spending? Do/can you move around or cut out current household expenses to add to your holiday spending? If you are in the red, then in all honest, you should not be spending anything on holiday gifts. But if you feel like you must, then pay in cash! Never use credit cards when you have more money going out than coming in. If you do, you are just digging yourself into a deeper financial hole.

Step 5: Once you create your plan; stick to it at all costs! Feel free to review it and make changes but do not abandon it.

Paying off the bills

Once the holidays are over, the bills will start rolling in. A new year and new debt; something to look forward too. Well, maybe; after all, you have prepared for this situation. You had setup and stuck to a budget. And now you just need to implement your repayment strategy. There are several ways to repay your credit card debt. Here is a list of four ways to repay that holiday credit card debt.

  1. Target on debt at a time. You want to be sure to pay the minimum amount on each of your credit cards. But choose one (the one with the highest interest rate or the smallest balance) and pay extra on that debt. You want to try and clear that debt as fast as possible. Once you do, repeat the process.
  2. Pay more than the minimum. You if your budget affords allows it, pay more than the minimum payment required. This works well if you only have one or two credit cards.
  3. Consolidate cards. If the numbers work out, try moving the debt from a couple of your cards to a new low interest rate card. This is only a good idea if you plan on making payments. Otherwise, you are doing nothing more than kicking the debt can down the road.
  4. Re-budget! Take a fresh look at your household budget and see if you can move things around or cut out. Then put that freed up money into paying down your debt.

Summary

Well there you have it. Simple right? Just create a budget and then pay off the bills when they start arriving. Trust me, it is certainly easier said than done. But you can do it! You just need to stick to and trust the process. It will take dedication and will power, so if you feel weak or like you are faltering, look to you your support system. Get your self a budget buddy! Someone that you feel confident that they can help you stay the course. Heck help each other out; be each other’s budget buddy! The bottom line is that with all the craziness in the world and the severe decrease in delayed gratification, we all need a little help with financial responsibility.

It is so easy to charge things and not worry about the consequences. You know what they say, out of sight, out of mind. But debt builds up fast and with the high interest rates, you could very well be paying off that $5 cup of coffee for well over a year! It may be a good cup of coffee but not at 19% to 21% interest! It is high time we start accepting responsibility for our decisions and actions, once again. And what better place to start than with our personal finance? Don’t forget to grad our Debt Elimination Blueprint to help you on your way.

Am I prepared to apply for a credit card?

Am I prepared to apply for a credit card?

It is always a big day in a person’s life when it happens. Even from when we were little kids, most of us dreamt of it. We pretended to use them. We watched in awe as our parents pulled them out. We instinctively knew someday that would be us! So just exactly what is this mystical thing that has held our fancy through all of our childhood and into adulthood? Yep, you guess it, credit cards. We love them! But just how do we know exactly when we are ready, really ready, for them. When are we ready for the responsibility? The simplest answer is that there is no set time that is the same for everyone which dictates when a person is ready to open a charge account. However, there are some markers than can help a person decide if and when they are ready, or should I say, when they are more prepared to handle the demand of that little three by two plastic demon.

How old do you have to be to apply for a credit card?

Although it has been said that age is just a number, in cases of legally binding contracts or decisions that may affect your life for many years, just a number is really not an acceptable answer. The official answer is that a person must be a least 18 years old to apply for and obtain a credit card. Remember, a credit card is a legal contract between two entities. In America, the age of 18 is widely considered reaching adulthood; where a person can legally vote, go to war, and sign contracts among other things.

While most credit card companies are more than happy to sending out thousands of offer mailings to all those 18 years old and above, they may apply stricter guidelines as to who can qualify for their card, especially if you are between the ages of 18 and 21. Just because you have just celebrated your 18th birthday does not guarantee that you will get that credit card you have been dreaming of since your childhood.

How much should your debt to income ratio be?

A person’s debt to income, or DTI, ratio can be a pivotal factor in that person’s ability to obtain loans or lines of credit. So, what exactly is DTI? Let us find out together. Firstly, let me define DTI for you; DTI is found by taking a total of all your monthly debts (ie. rent, utilities, insurance, etc.) divided the total of all your combined monthly income. This ratio is your personal DTI. This number is important because financial and credit lenders use this number to help them determine if you will be able to pay back loans or other financial obligations. So, what is a good DTI to have? Here are a few percentile benchmarks to give you an idea and whether your DTI will help or hinder you borrowing efforts.

  1. 36% and below: You should be in good shape. A DTI in this range most likely indicates that you are managing your debt well or at the very least have sufficient income to stay on top of paying your debts.
  2. 36% to 42%: You might need a little work. A DTI in this range causes some caution lights to appear for lenders. If you can, you should probably work on getting your DTI down before trying to get a loan or credit card. If not, lenders may impose other restrictions (ie. having a co-signer) for you to obtain the loan or credit card.
  3. 43% to 50%: You need a lot of work. A DTI in this range can severely limit your access to loans or credit cards without significant restrictions or limits. When lenders see DTIs in this range, they see red flags!
  4. 50% and up: If you are in this range, you need to spend a considerable amount of your time paying down your debts and put the idea of getting a loan or credit card onto the back burner. Lenders will consider you a very high risk if you DTI is in this range and most likely will decline your application out of hand.

Do you need to have a job before applying for a credit card?

Although all lenders will sleep better at night if their card holders have a verifiable job; most credit card companies do not require proof of employment before issuing a credit card. However, you may have to provide some sort source of income before being accepted. Again, a credit card company may add on other restrictions or requirements (ie. a co-signer) if you do not provide them with employment or other source of income details.

There are certain types of cards, called Secured Credit Cards, that an applicant can apply and obtain without having a job, providing the applicant can provide a deposit equal to the line of credit to the card lender institution.

Who should or should not apply for a credit card?

Even though you may be able to meet the requirement on paper to apply for a credit card that does not necessarily mean that you should. There is more to obtaining a credit card than just being of age, having a social security number, and having a job. There are several other considerations that a person should think about before jumping into a relationship with a credit card. How are you with your money? Are you being responsible (ie. paying bills on time, saving) or are you barely living paycheck to paycheck? Do you have a budget, and do you stick to it? What is your attitude towards money (ie. conservative or frivolous)? Do you have an impulsive personality, or can you stick to delayed gratification?

In Summary

The question was asked, when is a person ready to apply for a credit card. And as you have just read there are a myriad of factors that come into play when considering if a person is prepared to get the plastic timebomb. Things like a person’s age and ability to pay are just a few things that go into getting a credit card. There are also things like DTI (debt to income ratio) that credit card companies look at as well before extending a credit card.

However, most people only consider these ‘on paper’ factors; and they really need to take a personal inventory before applying for a credit card. A person’ personality and maturity level can and will play a huge factor in determining whether they are prepared for the responsibilities of managing that plastic taskmaster. A credit card can give a person a sense of freedom. But when the bills turn up at the end of the month, that sense of freedom may turn into a life shackled to your new plastic masters.