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Taking steps now will help lighten the money blues at Christmas, experts say

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It's a major downer to talk about money problems during the holiday season. But how can you not?

Take your pick of consumer surveys these days and it doesn't take an accountant to tap out the numbers on a calculator and realize many people feel as much stress as they do holiday cheer.

Let's face it: The stakes just seem to get higher with each holiday season.

A recent BMO survey found Canadians plan to spend, on average, $1,810 this season, up 12 per cent from 2012.

Compared to 2011, we're spending almost $500 more.

At the same time, we're more indebted than ever. The yardstick of our indebtedness -- debt to household income -- hit a record 163.7 per cent recently.

Consumer debt -- credit card pain -- is on the rise. A recent RBC survey found the average non-mortgaged debt increased to $15,165 in 2013 from $11,503 in 2012 for Manitoba and Saskatchewan -- the biggest jump in Canada.

Needless to say, some of us are feeling the Grinch this holiday because the pressure to spend and thus increase debt can be overwhelming, says Scott Hannah, president of the Credit Counselling Society.

"We see a lot of depression. It's a very difficult time of year," says the Vancouver counsellor. "The fact is, we're just bombarded with marketing in every form of media. It just keeps it front and centre of a person's overall financial picture."

While the spending horses have largely left the corral this holiday season, it's not too late or too early to start thinking about making a financial change for the better. Procrastinating will only make the holiday blues more profound, Hannah says.

"We find that when people go from worrying to taking action, things feel a whole lot better," he says.

So if you're facing a blue Christmas because you're swimming in a sea of red, here's a remedy to help cure what's ailing your balance sheet.


How do you know if you need financial help?

Most people can carry on with a fiscal imbalance for a few years before things really start to unravel. Bankruptcy trustee Jillian Taylor-Mancusi, with LCTaylor, says she often doesn't see as many people during this time of year. Instead, they come in the spring after the bills have rolled in and tax returns are filed. Bankruptcies are actually down in Manitoba year over year, she says. But that doesn't mean we're doing better. Instead, Taylor-Mancusi suspects many households have been able to keep debt problems at bay for much longer than in previous years because of the booming real estate market.

Rather than topping out with borrowing on plastic, we can now mine the equity in our homes, using them like an ATM.

Clearly, this is very problematic.

"You can only keep up with that kind of a debt for so long," she says.

Once interest rates rise, she says bankruptcies and its lesser sister, consumer proposals, will increase as families find it harder to manage sizable debts on lines of credit backed by their homes.

Bankruptcy and consumer proposals should be last resorts. If you can identify the problem months earlier and take action to reduce spending, you likely can eliminate your debts without these legally binding options.

Hannah says one of the telltale signs you need to make a change is you're making only the minimum payments on credit cards or paying just the interest on a line of credit.

These situations are not sustainable, because whenever an unforeseen expense comes up, you're going to sink even further into debt, increasing your interest costs while decreasing your cash flow for essential expenses such as groceries, transportation and housing.


Don't procrastinate

Even though it's the holidays, you can still make big changes that aren't all that disruptive to your household. Hannah says the key to a successful start is ensuring your family is on board. This means having a family meeting, even if it's during the holidays. Success in this regard is dependent on messaging.

"Most kids will get a sense about how things are going at home," he says. "They also tend to think the worst -- 'mom and dad are broke,' as opposed to 'mom and dad are responsible' -- so it's very important to have that conversation and deliver that message."

A family meeting can help set the proper tone for the rest of the holidays. The family can even brainstorm ways to have holiday fun without spending a lot of money.

"Having that discussion as a family will help ease that sense of guilt when you say, 'We can't do this,' and then the kids are asking, 'Why not?' " Hannah says.


Bean-counting 101

Financial planning and tax expert Todd Sigurdson, with Investors Group, says talking about change is one thing; putting it into action is another. When it comes to turning the financial tide, building a better budget is essential.

"There's nothing really sexy about budgeting per se, but at the end of the day, it's a necessary evil."

According to a recent survey commissioned by Investors Group, 30 per cent of Canadians set a holiday budget. The problem is half of those who set a budget fail to stay on track.

John Silver, executive director of the non-profit Community Financial Counselling Services in Winnipeg, says budgeting for the holidays should be an extension of your overall budgeting, and there's no time like the present to get a firm hold on your tally at the till over the last few weeks.

When it comes to effective budgeting, the devil is often in the details. Unexpected and small outlays can deliver a thousand mortal nicks to the best-laid spending plans.

"When most consumers think about controlling their costs around the holidays and following a budget, they automatically think of the amount they spend on gifts," Silver says. "But other expenses usually derail your budget and put you in a tough situation into the new year."

Among them are holiday travel, entertaining guests, charitable donations, decorations and stocking-stuffers.

Budgeting is an unending war that will continue not only through the holidays and into the first few weeks of new year; it must be a disciplined daily ritual that plans for the near and long term, all the while searching for ways to increase earnings and decrease spending.

It's the only way to get out of debt without taking more extreme measures, and frankly, the only way to live sustainably.

Budgeting is not just about planning to be debt-free. It includes a plan to build savings, too.

"A budget is meant for setting reasonable financial goalss. One of those goals may be to set aside a certain dollar amount, done via an automatic transfer to a savings account, for example," Silver says.

Although setting aside money for savings will slow down debt repayment, building a financial cushion helps absorb shocks to your budget that inevitably happen.

"Long-term, it means you've changed some habits and broken the cycle that whenever something unexpected comes up, you reach for the credit card," Hannah says.

"We have to get out of that habit and get to the point where we're only making payments on credit instead of relying on it."


A little help, please

Budgeting is challenging even when you're not trying to find extra cash to reduce debt, so figuring out a plan of attack to eliminate debt often requires professional help. Fortunately, plenty of options are available.

"First and foremost, people should ensure the entity they're contacting is properly licensed in the province and has a physical office in the province," Hannah says.

"If somebody is going to come for credit-counselling services, they're better served by a non-profit like the Credit Counselling Society or Community Financial Counselling Services, because both agencies are accredited through a national association and our counsellors are certified."

Both receive funding from lenders to provide free help with debt.

"Quite frankly, with the ease that people can access credit nowadays, it's important that financial institutions take some responsibility in helping customers who got themselves into financially too-deep waters," Hannah says.

In most cases, credit-counselling agencies can help people get out of debt, working with them to develop a reasonable household budget and repayment plan. They can also work with creditors to reduce clients' interest costs or even eliminate the interest charges until the debt is paid in full.

But when the debts are too large to be fully repaid, more drastic measures are usually necessary, and more often than not, bankruptcy or a consumer proposal is required.

"Once debt gets unmanageable, where their creditors are making statements of claim or borrowers are getting judgments or garnishments, that's when a trustee should really step in," says Taylor-Mancusi.

Bankruptcy trustees can set up a legally binding agreement such as filing for bankruptcy or making a consumer proposal, which unlike bankruptcy proceedings, takes less time to re-establish credit and does not require borrowers to surrender assets.

Just because you're struggling with debt doesn't mean you need to take either route, but Taylor-Mancusi says it's important to take that first step to find out where you stand.

"If you're in debt and have all the extra pressure that comes along with the holiday season, it's only going to get worse, because people with financial issues are so stressed, they're not sleeping and eating properly," she says. "But if they know what their options are and know there is help out there, then they're going to have a good night's sleep -- and even be able to enjoy the season."

Republished from the Winnipeg Free Press print edition December 21, 2013 B12

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