According to a recent report by Roy Morgan, Australian consumers will spend about $21 billion in stores and online during the holiday season, a 2.1 per cent jump on the previous year and a 12.6 per cent jump from pre-pandemic times in 2019.
But what’s going to be the preferred mode of payment this Christmas?
In the latest Catalyst survey from research platform Glow, 36% of participants said they’ll be using cash to buy Christmas presents. However, a higher percentage (48%) will put their purchases on credit cards, and 15% will rely on Buy Now Pay Later services.
Well, no harm done if you can pay the bills in time, but not planning ahead could see you waking up with a financial hangover in the new year. For instance, spending on Christmas festivities had plunged Aussies $24.3 billion deeper into credit card debt at the beginning of 2021 – that’s almost $1,700 per card.
But every holiday season doesn’t have to turn into a nightmare at the beginning of the new year. There are simple things you could do to get your finances back on track without being the Grinch who stole Christmas! Here are some tips to help you:
- Have a budget
We know you have heard this one before, but there is no denying that setting a realistic budget should be your highest priority if you plan to be financially fit for life. We say ‘realistic’ because there is no need to deprive yourself – all you need to do is cut down on the unnecessary expenses and see how much you end up saving each month.
How you choose to use your savings depends on your financial goals. Perhaps you could increase the frequency of your mortgage repayments to build equity into your home faster. Alternately, you want to park the money in an offset account to reduce the interest you pay on your mortgage.
- Consider a balance transfer
If you wish to pay off your credit card balance, one of the options you have is transferring your debts to a low-interest rate credit card, also known as a balance transfer credit card.
A balance transfer credit card allows you to save money on interest charges and repay your debts faster by offering a low interest rate (preferably 0%) for a set period. However, a balance transfer is only helpful if you are able to pay off your debts within the introductory period. Interest rates (or revert rates) after this period are quite high, and the whole strategy would fall apart if you fail to pay off your debt during the balance transfer period. One way to make it work is dividing your total outstanding by the number of months in the balance transfer period to figure out how much you need to pay every month to clear off the balance.
- Avoid the spending trap
It’s easy to spend money unless it’s coming from your pocket. Therefore, it’s best to use cold, hard cash to pay for Christmas presents or set yourself a strict spending limit if you are charging the money to your credit card or a Buy Now Pay Later service.
- Consolidate your debts
If you have more than one debt, you could consider a debt consolidation loan to combine all your debts into a single loan. This could be a helpful strategy, depending upon the size of your various loans and the interest rate you are paying on them. Additionally, it’s usually easier to deal with one lender and make a single repayment to cover all your outstanding debts. You may even secure a lower interest rate by refinancing your mortgage to consolidate your debts.
However, remember that debt consolidation may not be the best strategy for everyone, and it’s important to consult a financial expert before consolidating your loans. There may also be fees that you need to pay for refinancing your mortgage, especially if you have a fixed-rate home loan. Speaking to a mortgage broker could help you understand these costs better.
Here’s a summary of what you can do to fight your debts this Christmas:
- Make a fixed budget for spending.
- Use cash for buying presents.
- If you use credit cards or BNPL services, set strict spending limits to avoid splurging.
- Look for an appropriate strategy to pay off your debts, such as debt consolidation or using a balance transfer credit card.