Enjoy Christmas but don’t set yourself up for a miserable 2016
Statistics show that people who apply for credit in the lead up to Christmas are more likely to default than those who apply in the first 6 months of the year. This is because they overspend at Christmas then can’t afford their repayments.
According to a Commonwealth Bank report issued last year, it was expected that the average Australian would spend $993 during the Christmas period. While this may sound like a manageable amount, feedback from the budgeting app Pocketbook shows that 60% of Australians spend more than they earn during this time. It’s this frivolous overspend at Christmas that lands people in trouble in the new year.
So how can you best prepare for Christmas without putting yourself in debt for the new year?
1. Don’t forget your regular financial commitments
It’s important to remember that the festive season doesn’t just mean increased spending on gifts, but also on entertaining, eating out, travelling etc. It can be easy to forget your regular financial commitments during this period (e.g. loan repayments, mobile phone bills, etc), so an overspend at Christmas compounds the problem in the coming months.
If you default on credit card or loan repayments, lenders may look unfavourably on you in the future because a default stays on your credit report for five years and this could prevent you obtaining further credit.
2. Be realistic about your budget
Work out how much you can realistically spend on each person. Remember that Christmas is about enjoying time together, not buying expensive presents. You don’t want to spend the new year struggling to pay for gifts you purchased on your credit card.
If you are concerned about your budget, the chances are that others in your family are too, so suggest that everyone buys gifts just for the kids or do a “Secret Santa” with an agreed price limit on what each person spends.
With this in mind, here are our top 5 tips to avoid an overspend at Christmas.
- Avoid using your credit card: If you can’t afford it now, you won’t be able to afford it in the new year. Try lay-buying items and paying off a set amount each week so they’re paid for by Christmas. This will help you spread the cost without going into debt.
- Set a clear budget of how much you can afford to spend and stick to it: List everyone you have to buy presents for and calculate the total you’ll have to spend. Don’t be tempted to go over it – every additional $5 adds up quickly!
- Keep track of your bills: If you do use your credit card, make sure you keep track of all transactions. This way, you won’t receive a nasty shock when the bill arrives. It can be very easy to lose track when you simply hand over your credit card on a regular basis.
- Spend in stages and find bargains. Make a note of your spend this year, then make a plan to shop in stages and find bargains in future years.
- Be realistic about what you can afford: If you can’t afford to spend say $50 per person, then commit to a lower amount to avoid stressing out about it. Again, suggest buying just for the kids or have a “Secret Santa”. Or, if you’re able to, make gifts for your family and friends.
Remember to have a festive season you can enjoy without having to spend the rest of the new year paying for it! Have a great time but try not to overspend at Christmas.