When the silly season gets underway, many of us dread the increased spending that usually comes with this time of year. There’s Christmas gifts, food and drinks to buy, along with plenty of events to attend – all of which can add up and get pretty expensive.
But, it’s possible to get through the festive period and into the new year without living beyond your means, blowing through your savings or damaging your credit score. Here are our top five tips to avoid a financial hangover in 2022 so you can stay on track with your financial goals.
The key to avoiding a financial headache in the new year is to prepare your holiday and Christmas spending well in advance. Before everything kicks off in December, create a budget for your spending so you have a plan to follow. Make sure it’s realistic – if you enjoy celebrating and gifting-giving at this time of year, give yourself some wiggle room while keeping it within your means.
A budget won’t be too effective if you don’t track your spending, so it’s a good idea to keep an eye on your spending habits throughout the festive season. This means looking at your bank account frequently to keep up with what money is going in and out, which will ensure you’re sticking to your budget.
‘Buy now, pay later’ services like Afterpay and Klarna have exploded in popularity throughout the pandemic, alongside an increased reliance on shopping online. While they may seem like the perfect way to spend money you don’t yet have without paying interest, they can have their downsides.
Although these services may be fee-free for the most part, if you fall behind on payments, you’ll usually be subjected to late fees. This can impact your credit score, which in turn can hamper your ability to obtain credit products like home loans, car loans and credit cards. So, a service that was once free can quickly become costly.
Credit cards can be a similar story around the Christmas period. Even if you start by making your repayments on time, if you happen to get in over your head, the interest charged on your credit card debt can pile up quickly and become expensive. So, it might be best to avoid paying for your holiday spending with credit cards and ‘buy now, pay later’ services if you can help it.
This one requires a bit of forward planning, but can be well worth it not just for unexpected expenses over Christmas but for the rest of the year too. Gradually saving money in an emergency fund can ensure you’re not caught without cash or stuck relying on credit cards when you have to pay for something unexpectedly.
We don’t mean when you ‘unexpectedly’ have to buy a new outfit for a Christmas party even though you can wear something you already own – we mean when an expense comes up that you can’t avoid. It might be an unforeseen change of plans that means you have to travel, or you might find yourself hosting an impromptu Christmas catch up.
Whatever the expense, having an emergency fund to fall back on can save you from racking up holiday debt which you might accrue should you use credit cards instead.
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If you have multiple credit cards and decide to use one (or more) for purchases during the holiday season, it could be worth doing a balance transfer when you’re done with your festive spending.
A balance transfer is when you transfer the amount you owe on one credit card to another credit card. This can be a new or existing credit card. Often the balance you transfer will be subject to a low interest rate or no interest rate for a limited time. So, balance transfers may only save you money if you can pay off the balance you owe in the no or low interest period.
If you make new purchases on the credit card that you’ve transferred another balance to, you might attract a different interest rate. It’s usually best not to spend on this card and cancel your old card so you can start paying off your debt.
If you’re a homeowner and you find yourself with credit card debt (or other debt like a car loan) after Christmas time, consolidating your debt into your home loan could be a good option for you.
Debt consolidation involves bundling one or more debts into your home loan. It means that instead of paying off your home loan and other debts separately, you only make one fortnightly or monthly repayment. Debts you can consolidate into your home loan include credit cards, personal loans and car loans.
Home loans usually have lower interest rates than credit cards and other unsecured debts, so merging these debts into your home loan can potentially save you money in interest. To consolidate your debt, you’ll need to refinance your home loan.
Roll your credit card, car or personal loans into your home loan.
Do you want to consolidate debt into your home loan after the silly season? Whatever your financial situation, Lendi’s Home Loan Specialists are here to help. Book an appointment today.
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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