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Pattie Lovett-Reid: How to avoid a holiday debt hangover

ANALYSIS: The historically low interest rate environment coupled with the tough employment landscape has led many to take on more debt than they are actually comfortable with. The challenge is where do you begin in tackling debt? Here are my 3 Ds to get you to an A in personal finance.

DATA

I encourage you to confront your financial facts, as brutal as they may be, given all the volatility we've been witnessing in the markets this year. Think about your long-term plan, and be sure to diversify your investment portfolio while keeping your emotions from dictating your investment decisions. Also, I appreciate we are in a low interest rate environment and it’s tempting to keep up with the Joneses. However, remember they are likely broke too. Even with all the good deals out there, you can still go broke trying to take advantage of all of them. I'm not suggesting you shouldn't spend money in this environment. Only spend if you can afford it — yes, the economy needs you, but you don't have to prop it up single-handedly.

DECISIONS

Only once you complete cash flow and net worth statements will you understand where you stand financially, which can put you in a position to make tough financial decisions. Look for ways to advance your balance sheet. Cut back on discretionary spending, save on taxes, and rebalance your portfolio. The decisions you need to make will be staring you in the face once you shed some light on your financial books. Look to pay the most expensive debt first—the one that has the highest interest rate not the one with the biggest balance. Take the money you save from bringing your lunch to work, cutting back on entertainment costs and taking public transit—just to name just a few—and apply the money weekly to the outstanding balance. Look to consolidate at a lower rate and put the credit cards away.

DISCIPLINE

It’s easy to create a cash flow statement: Write down where your money is coming from and where you’re spending your money. A net worth statement is simply listing down everything you owe and everything you own, and the goal here is to improve it year over year. Change doesn’t happen quickly and it takes a long time to get out of debt. So none of this will matter if you don't have the discipline to stick to your action plan. It isn't easy. Of the three D's, discipline is the hardest. Changes don't happen overnight and it takes time to right financial wrongs. Start with small successes and build momentum to encourage you to stick with the plan.

Procrastination is the fastest way to destroy your financial plan. However, if you resolve to make one positive change in your financial life every month — for example, cut spending needlessly, open a Tax-Free Savings Account, and talk to your accountant to find ways to save on taxes — I guarantee you will be in a better position financially.

That’s how these three D's can equal an A+!

As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV
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