Don't let 12 days of Christmas spending turn into a 12-month debt hangover
A New Year means a fresh start for many, but it's hard to have a clean slate with a credit card bill looming. Are you worried about what you spent over the silly season, and how you're going to manage your finances in the New Year? No matter what you spent over the Christmas period, there are ways to manage your debts and get your finances under control. Start the New Year the right way and don't let your debt hang over your head.
What options do you have to manage your Christmas debt?
There are a few options available to pay down the spending you did over the holiday period. Below we highlight balance transfers with a credit card, or consolidating debt through a personal loan.
Getting rid of interest with a balance transfer credit card
A balance transfer credit card can help you pay off an existing card and even loan debts that have accumulated. You can enjoy rates as low as 0% p.a. for a set period of time, helping you to save on interest while you pay down your debt, or in this case - quite possibly your Christmas debt. These cards allow you to bring over an existing balance from one or more credit or store card accounts for up to 16 months (or longer months on some cards). Considering longer periods can translate into more time to pay down your debt while saving on interest.
Using this table and your considerations
- Balance transfer period. Look at the length of balance transfer offers and their rates. Weighing up the interest and the length of the offer can not only help you plan ahead, but can also potentially set your goal to rid yourself of debt.
- Revert rate. The balance transfer rate on the card will revert to a different interest rate following the end of the balance transfer period - usually the cash advance rate. Check what rate will apply and if this is competitive.
- Costs of the card. See what other fees are applicable, as well as what purchase rate applies to the card and if you lose the interest-free days due to the balance transferred debt.
- Other features the card offers. Does the card come with a rewards program? Are there any complimentary insurance covers? Decide what features you want and see if you are able to get them.
- Balance transfer fees. Some card providers may charge fees as part of the balance transfer. It will usually be between 1-3% of the amount transferred, so be sure to check if these fees apply.
- Pay down an existing debt and save money on interest
- Consolidating multiple credit card accounts and other debts into one can help improve your credit rating
- Some balance transfer cards offer great features such as rewards programs, low purchase rates and no annual fees
Some things to keep in mind
- The revert rate on these cards tends to be quite high
- The annual fees can outweigh any cost savings depending on the size of your debt and length of the balance transfer period
- You may lose interest-free days on new purchases because of the balance transfer debt on the card
- You cannot take up your entire credit limit with the balance transfer, usually only 80-95%
Personal loans can offer longer terms with even more competitive rates
A debt consolidation loan is another option you have. These loans do not offer 0% p.a. periods, but let you pay off your debt at competitive rates over a longer term.
If you're still having doubts on how to tackle your debt then read this
Even if you're still having doubts it's okay, at least by now you've acknowledged some of the avenues you can take, and it's time to decide what one will work for you. Managing debt will depend on a lot of your situational lifestyle, so it may also help to define the following to help you decide:
- How much debt do you have?
If you're looking at a balance transfer credit card, you'll only be able to bring over a certain portion of your new approved credit limit in the balance transfer. This is usually between 80-95%. For a personal loan, you'll have to be approved for the sufficient amount you need to pay off all your debts.
- What kind of debts are they?
Are your debts all on one credit card or are they spread across a few credit cards and a personal loan? The kind of debts you hold matter as to whether you should take out a credit card or loan. Most balance transfer credit cards will not let you balance transfer a personal loan, although a select few lenders will allow a balance transfer from a personal loan, so if you want to do this you will need to ensure that it's possible. Also, some cards have limits on the amount of cards you can bring over a balance from.
- How long will it take you to repay the debt?
The length of time it will take you to repay your debt will be a crucial deciding factor in what kind of product you apply for. A balance transfer credit card will revert to a set interest rate, usually the cash advance rate, following the promotional period, so if you aren't able to fully pay back your debt within that period then you may want to consider a different option. See what monthly repayments will be manageable on your budget to find an option that will work for you.
How to avoid Christmas debt: Tips for next year
Being smart about spending and the use of credit cards over Christmas can help you improve your cash flow around the holidays and beyond. Starting the New Year with bad debt can see you get off to a bad start, so it’s crucial to follow the tips below to minimise what you pay over the Christmas period. First we’ll look at some basic ways of saving money over Christmas, then we’ll show you how to compare credit cards for your Christmas spending, and finally we’ll show you some ways to get out of Christmas debt.
What types of Christmas credit cards are available?
There are no credit cards that are specifically designed for Christmas spending. Rather, you can select a credit card that supports the type of spending you're likely to do around Christmas time. The right card for you will depend on how you use your credit card, the amount of spending you plan on doing with it, and the type of benefits and features you want to receive. Take a look below for some types of credit cards that might be beneficial to consider this festive season:
Low Purchase Rate Credit Cards
0% interest rate on purchases usually offered for a limited time (often a period of six to 12 months). During this time you can make purchases and pay no interest until the promotional period ends. This gives you the ability to make Christmas purchases and then gradually pay them off interest-free. These cards can still have additional features such as rewards programs, complimentary insurance policies and more, so ensure the annual fees aren't too high compared to the value of these perks. Be sure to know what the interest rate becomes after the promotional ends. It can revert to the purchase rate or the cash advance rate.
0% Purchases Credit Cards
Low Purchase Rate Credit Cards
No annual fee credit cards
The standout feature of this type of card is, as you can probably guess, the fact that you aren't charged an annual fee. This can save you a considerable amount with the card, especially when it comes to Christmas time. These cards can either charge no annual fee for the life of the card, or have a waived annual fee for the first year. Either way, there are savings to be had. With these cards, you should keep the following in mind:
- How long does 'no annual fee' apply? As mentioned above, the no annual fee offer may not apply to the life of the card, or it might only be available to qualifying customers. Check the details of the offer before you apply to see that you're eligible.
- Does the card offer competitive rates? While a card with no annual fee can help you save, it can also cost you a lot if it has a high interest rate. Compare the purchase rate, and balance transfer rate if applicable, to see if the card is a competitive all-round option.
- What other features does the card offer? No annual fee does not mean 'no features', as these cards often come with some lucrative features to supplement your credit card spending. No annual fee cards can come linked to rewards programs, offer bonus points, come with complimentary insurance covers and also balance transfer offers.
Rewards Credit Cards
A rewards card simply rewards you with points for every dollar worth of eligible purchases you make. They allow you to cash in your rewards points for a range of items and other perks such as free flights, fare upgrades and more. Rewards cards offer many incentives to attract new customers, including bonus points, balance transfer offers and 0% or low purchase rate promotions. They typically have a higher annual fee, but can be a good way to get extra value from your Christmas purchases. You need to make sure you have the self control before you sign up for the rewards. If you spend just to get rewards points you will end up spending more than you can afford to pay off, and the interest you pay on your purchases will cancel out any rewards gifts you may have qualified for. Typically you need to spend around $2,000 a month to gain enough rewards to cancel out the costs of a rewards credit card.
Retail Rewards Credit Cards
These are credit cards which have certain shopping benefits or rewards programs in place. They're often store branded, by retailers such as Woolworths, Coles or Myer, and can come with interest-free deals on purchases made at these stores. Like a rewards card, from time to time retail credit cards can also offer 0% or low interest rate promotions as well as balance transfer deals.
Cards with extended warranty offers
Warranty is a guarantee that the product you're buying won't break — and if it does, you'll be able to get a replacement, or at least have it fixed. Credit cards that offer extended warranty essentially extend this guarantee, so you'll be able to enjoy the warranty, and your purchased product, for a longer period of time. So, how does extended warranty work on credit cards?
- Making your purchase. You need to make the purchase on your credit card, and your credit card needs to offer extended warranty.
- Claiming your warranty. Proof of your purchase will need to be kept in order to take advantage of the extended warranty offer.
- Types of purchases covered. Only Australian purchases that offer an expressed Australian warranty will be covered.
- Limits. You will usually have a limit on the amount you are able to claim within a certain period, usually one year.
- Maximum time of warranty extension. Credit cards that offer this feature usually only extend the warranty for a maximum period of five years. Be sure to check the terms that your credit card offers.
How do I prepare my finances for Christmas?
The health of your finances will determine how generous Santa will be with your family and friends this year, and which special trimmings make it to the dinner table. If you want it all, follow the tips below. Preparing for Christmas is one thing, but sticking to your budget is tough when the Christmas sales and advertising is in full swing. Here's what you can do to avoid needless overspending over the holiday season.
- Don't spend too long at the stores while you're shopping as you are more likely to buy something you don't need
- Shop online if you can and get the cheapest prices you can. Be mindful of credit card surcharges of foreign transaction fees if purchasing from an overseas retailer
- Remain aware of your credit card balance at all times
- Have a credit card repayment plan and always aim to pay off your balance in full each month
- Make homemade gifts like handmade chocolates, chocolate ginger, craft gifts, scrapbook, a jar of cookies or a jar of lollies (sometimes the thought counts more than the value of the gift) instead of buying store bought gifts
- Start buying early so that you don't have all the costs in December and so you can make use of sales when they come
- Find activities to share which cost no money like a trip to the beach, a BBQ in the park, bushwalking or a picnic, as they will all help keep that budget under control.
What kind of credit card use should I avoid over Christmas?
Not repaying your balance in full and on time
Overseas transaction fees from online stores
How do I manage my Christmas credit card purchases?
Keep track of your repayments. When you miss a repayment or regularly make your repayments late, you are travelling down the slippery slope to uncontrollable Christmas credit card debt. Missed repayments have a snowball effect, because when you miss a repayment you are charged a late fee, the late fee is added to your balance, your balance increases, interest is charged on your balance including your fees so your interest charges increase and you need to pay more and more each month just to beat the compounding interest, let alone repay your principal balance.
The golden rules to managing your christmas purchases
Use automatic payments
Understand interest-free days.
Understanding 55 days interest free days
Set yourself small goals
Reward your successes
Organise your paperwork
The buddy system
Take drastic measures
- Try not to put anything on your credit card that you cannot pay off in January
- Pay off more than the monthly minimum each month
- Avoid late payment and over limit fees as these can be very expensive with some credit cards – pay a little towards your card each week and cover the monthly minimum in four installments and it will be a lot less painful and also those late payment fees won't be charged
Enjoy the holiday season
A little planning can go a long way when it comes to Christmas spending. Put a plan in place, and if you need a Christmas credit card make sure you consider all options in your comparison. This way you can enjoy, rather than worry about the holiday season. About Shopping and Holiday SpendingBack to top