Summer often brings a sense of freedom and relaxation, but it can also lead to unexpected expenses. From vacations and family activities to home renovations and gardening projects, the season’s carefree vibe can make it easy to overextend your budget. If you’re not careful, the extra spending can quickly turn into debt that’s hard to manage. Here’s how to stay on track and avoid the financial pitfalls of summer spending.

Be Mindful of Credit Card Debt

Many Canadians find themselves carrying a significant amount of credit card debt, especially if they purchased a home recently. A study by the Bank of Canada found that households that took on mortgages between 2020 and 2022 tend to carry 17% more credit card debt than those who bought their homes earlier. For example, if you owe $20,000, that extra 17% means you’re dealing with an additional $3,400 in debt. That amount can make a big difference when trying to pay down balances and manage your budget.

One way to address this is by using a credit card payment calculator. These tools can help you see how your minimum payments are likely to extend your debt over time and show you how making extra payments could reduce your interest and help you pay off your debt faster.

Managing HELOC Debt

With many recent mortgages being re-advanceable, homeowners now have access to a Home Equity Line of Credit (HELOC). While this can be a useful financial tool, it’s easy to misuse. When you pay down your mortgage, it increases your HELOC limit, but if you aren’t disciplined, you could end up using it for non-essential purchases rather than saving it for major expenses like home repairs.

A longer amortization period might make it easier to qualify for a mortgage, but it also means you’ll take much longer to pay off your loan. If you’ve opted for a 35-year mortgage, you could be paying off your home for decades. While this option can free up extra cash, it’s essential to be strategic about how you use it. Use any extra cash wisely—either for paying off debt or for planned expenses, not for spontaneous splurges.

However, be cautious of shifting debt from high-interest credit cards to your lower-interest HELOC. While the interest rate on your HELOC may be more affordable, you’re not truly addressing the underlying issue—spending beyond your means. Always use your home equity for planned investments rather than everyday purchases.

Personal Loans: A Growing Issue

Another area to keep an eye on is personal loans. According to the Bank of Canada, personal loans, such as those taken out for debt consolidation, are becoming more frequently overdue compared to other types of debt. This is often because people prioritize housing and necessary expenses, leaving loan payments to fall behind.

If you’re struggling with personal loan payments, it’s important to address the issue before it gets worse. Juggling payments can create additional stress, but late payments can damage your credit score and further complicate your financial situation. If you find yourself unable to keep up with payments, consider speaking with a credit counselor. They can help you explore your options and create a plan to get back on track.

The Impact of Rising Debt

The high levels of personal debt among Canadians are concerning, particularly in light of the economic challenges many are facing. The Bank of Canada has warned that households with significant debt may struggle to cope with future financial challenges, such as a drop in income or rising interest rates. With high inflation and the cost of living continuing to rise, many Canadians may find themselves stretched thin financially, making it harder to manage mortgage payments and other financial obligations.

To avoid falling into a deeper debt trap, it’s crucial to take a proactive approach to your finances. This might mean cutting back on discretionary spending or reevaluating your financial goals. It’s also a good idea to develop a budget that allows you to stay on top of your spending while making room for saving and paying off debt.

Take Control of Your Spending

Now is the time to take control of your finances. The high cost of living and ongoing inflation mean there’s no guarantee that relief will come soon. Rather than relying on lower interest rates or future savings to resolve your debt, it’s better to act now. Start by creating a realistic spending plan that doesn’t allow summer activities to turn into a “season of spending.” This proactive approach will help you avoid unnecessary debt and stay on top of your financial goals.

Instead of using credit to cover your expenses, consider saving up for large purchases or events in advance. It may require more discipline upfront, but it will pay off in the long run. Additionally, avoiding credit card debt and using your HELOC only for emergency or planned expenses will help you maintain financial stability.

Conclusion

Managing your spending during the summer can be challenging, especially with all the temptations and opportunities for extra costs. However, by staying mindful of your debt, being strategic with your finances, and sticking to a realistic budget, you can enjoy the season without overburdening yourself financially. Start planning now to avoid the frustration and regret that often come with overspending. By taking control of your finances today, you’ll set yourself up for a more secure and financially peaceful future.