23 Dec New credit cards and holiday spending

Q. I think I made a mistake by taking two new credit cards for holiday shopping. I’ve spent too much already, and I can make the minimums, but that’s it. What can I do?
— Spender

A. The holidays can certainly be a difficult time to keep to a budget and rein in spending.

With balances on your credit cards, it’s important to look for ways to find some extra cash to pay them off. This may mean cutting back on spending in other areas, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

In the meantime, she said, put both credit cards away so that you are not adding to the outstanding balances while you work on understanding your cash flow.

If an emergency arises, by all means use the card, but otherwise try to keep your spending within the confines of your income, Mott said.

Now let’s talk about cash flow.

“Cash flow is the difference between the income you receive each month and both your fixed — non-discretionary — and discretionary expenses,” Mott said. “For starters, you should make a list of all the expenses you must pay each month such as rent or a mortgage, car payment, food, gas, insurance and utilities.”

She recommends you do this for a year, but even a six-month period can give you a good idea of what these categories cost you on average each month.

Compare the monthly total for the fixed expenses to your monthly net-income and you’ll know what is left for non-essentials such as dining out and entertainment, Mott said.

“But with the need to pay off your credit cards, limiting spending in these discretionary categories is essential in order to find the extra cash necessary to make more than the minimum payments,” she said. “It comes down to prioritizing your goals.”

Mott said if you really want to be debt-free, then dinner out, the nail salon, or the expensive custom cup of coffee may be luxuries that you just can’t afford at the moment.

Going forward, Mott recommends you consider using an online app or software tool to help track your spending and monitor your budget.

“This will enable you to create longer-range savings plans such as an emergency fund or a holiday fund,” she said. “Many of these tools are free, will link to your bank or credit card accounts and provide categorization and spending summaries.”

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This post was first published in December 2016.