Ahh the festive season, a time for friends, family, food, celebration and usually this means big spending...or does it have to be? The good news is, there are ways you can celebrate your hard work over the last year while keeping your credit under control.
According to the recent Reserve Bank of Australia (RBA) data, credit card usage has fallen more than 6% year on year, especially as COVID-19 has meant that people aren’t travelling or dining out as often, instead focusing more on paying back their existing debts.1
But with Christmas fast approaching, Aussies may be tempted to splurge ahead of the silly season. To avoid starting the new year with a financial hangover, let’s look at some tips to celebrate without increasing your debts. You can thank yourself for getting a good head start on your financial goals next year.
Tip 1: Create and stick to a budget
A budget is great place to start. Need to get presents for all your loved ones? Jot all of them down in a Google sheets spreadsheet and assign a dollar amount and gift idea to each person. This makes sure you won’t be tempted to get them ‘just one more thing’ that might catch you out at the bargain bin. Do your research and compare prices to make sure you find one that fits with your budget. To keep track and monitor your budget, try this handy MoneySmart TrackMySPEND app which you can download from the online app stores. If money is tight, why not consider gifting redeemable DIY vouchers for tasks like babysitting or homemade dinners, or even create your own Christmas hamper with some baked goodies for family and friends. It’s budget-friendly and more importantly, it’s a thoughtful and creative gift. You can look up more tips here.
Tip 2: Avoid opening new credit accounts
It’s understandable that end of year deals are often too hard to pass up but try not to sign up for another store card just to get the bargain. If you feel like you have to, it's always important to understand the terms and conditions and how much your repayments will be.
Extra tip: There are a lot of new 'Buy Now Pay Later' services popping up which could trip you up. They often leave you spending more on gifts than you can afford in the long run. Be mindful of these services and use your budget as your guide. If you’re already in debt, the additional debt from these services may have an impact on your credit score, if you fall behind on repayments. This could make obtaining credit more difficult in the future.
Tip 3: Make your holiday budget go further
We all know that feeling of wanting to go on a holiday when feeling festive especially after a hard year of work. But, if you're on a tight-budget, saving as much as you can so that you don't accumulate new debts may be a better option. This will limit the chances of accumulating more new credit card to fund your trip.
If you’ve already booked a holiday, you might be tempted to see and do everything the destination has to offer. However, trying to fit everything on a lower budget can be tough.
Fortunately, a little forward planning could see you keeping your travel budget under control. For example, you may be able to get combination passes for a discounted price to save you even more money. Or if you still find yourself short of cash, rework your budget and see if you can try to cut some costs on entertainment or go for a cheaper alternative that will give you the same amount of excitement!
Tip 4: Chip away at your current debts
Slow and steady wins the race - even with your finances! Get next year started right by paying off some of those existing debts before you get new ones. Creating some auto-repayments on the day you get paid for example, helps you avoid late fees and helps you prevent the interest from increasing on your balance. The payment goes straight towards the debt – meaning you won’t have to waste time managing bills or forgetting when they are due. Depending on your financial situation, you could choose to pay off the credit card with the highest interest rate first or choose to pay one with the least amount of debt.
Tip 5: Leave the credit cards at home
According to CreditSmart, four in ten Aussies are expecting to use credit to pay for their Christmas budget blowout.2 Leave your credit card at home to avoid racking up credit card debt. You could also consider going old school and pay with cash! If you’ve done the hard work and already worked out your budget, you can withdraw exactly the amount you need. Psychological studies3 suggest that we’re more conscious of how we spend when we use cash, so use this to your advantage. If you don’t have the cash, you know that you’ll have to save up for next time - not just placing the purchase on the card. Maxing out your credit cards could hurt your credit score and give you a bad start for the new year. Let’s look after future you by going old school with cash. You can find more tips on how to cut down on your credit card debts here.
According to CreditSmart, four in ten Aussies are expecting to use credit to pay for their Christmas blowout.2
Christmas is a time for giving and celebrating successes but remember that there are also ways you can achieve this without breaking the bank.
If you’re already struggling with managing multiple credit card debts, it may be best to close them before applying for a new one.
While consolidating debts into one manageable loan might be an option to better manage your debts, always consider the pros and cons before signing on the dotted line or speak to a financial adviser before deciding if it's the right option for your needs.
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This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.