Christmas is traditionally a time for indulging – food, family, friends. But there’s another ‘f’ word which is at front and centre at this time of the year – finances! Unfortunately, with the new year there’s often a big credit card hangover, which can set us for a year of debt.
According to research from comparison site finder.com.au, more than 5 million Australians rely on debt to fund their Christmas, and 37% of Australians entered 2020 with a ‘Christmas debt hangover’ – will 2021 be any different for you?
Unfortunately, that Christmas spending blowout may take months to pay off, with 1 in 4 Australians taking up to 5 months to pay off Christmas debt – not a great way to start a new year!
After all, who wants to ring in the new year saddled with debt from the previous year?
Make some resolutions for your finances
The New Year is synonymous with making resolutions. Not surprisingly, the top financial resolution is to save money, followed by paying off credit cards and creating a budget.
Now’s the time to make a few resolutions. Be specific about your financial resolution – for example you may want to save $xx by June, pay off the credit card within xx months, put together xx% as a deposit for your home or even to reduce your mortgage by $xx – we’ll let you fill in all the blanks!
See what you’re actually spending your hard-earned money on
The next thing to do is see where your money is going each month.
Make a list of all your debts, such as:
- credit cards
- education (school tuition, HECS)
- car repayments
- personal loans
Now make a list of your everyday expenses to see what you’re spending money on:
- energy and utilities
- phone and internet
- clothing and footwear
- health services
- education and childcare
- leisure and entertainment
It can be a real eye-opener to see what you actually spend money on!
Now that you’ve looked at your everyday expenses and identified where you can make savings, shop around to find the best price for energy, utilities, insurance and phone – even your mortgage! It could save you thousands!
Budgeting is everything
The easiest way to eliminate your debt hangover is to set yourself a budget and stick to it. Know where your money is going and how it’s being spent. According to a study by UBank, a staggering 86% of Australians don’t know how much money they are spending each month.
Stick to a budget and always think about your financial resolutions – every time you are spending money on things you don’t need, you’re diverting money that you could be using to eliminate debt or increase savings.
Track your spending
There’s so much technology at our fingertips, so why not put it to good use?
There are stacks of budgeting and finance apps out there that can really help you keep on top of your spending.
Be disciplined and track your spending for a month or two. It may seem a bit of a hassle to do this, but it can be a really useful tool to give you a picture of where your money is going each month!
Other tips to help banish the credit card hangover
Learn to live on a budget
Those debts aren’t going to pay themselves off, so you’re going to have to make some sacrifices in the short term. In your everyday expenses, identify what are ‘needs’ versus ‘wants’. Cut back drastically on the ‘wants’ or – better still - cut them out altogether for a few months.
Prioritise your debts
Have a look at your various debts and work out which ones are costing you the most in fees and charges and pays those debts off first.
Concentrate on eliminating in full that first debt you’ve identified. Then, go to the next item on the list, focusing on paying it off until it’s cleared. As you clear debt, you’ll have more to put onto other debts, so it’s a snowball effect.
Look into debt consolidation
Debt consolidation can make it easier to manage your repayments (plus it has the psychological benefit of there being only one debt to service).
With interest rates at historically low levels, investigate whether it’s worth refinancing your home loan and absorbing your other debts into your new home loan. You could end up paying the same amount (or possibly less) each month!
If you haven’t refinanced your home loan in a while, chances are you could save a considerable amount by doing this. Just be sure to do your research and shop around to compare.
Kick the habits which are really costing you
Since we’re on the topic of resolutions, have a look at the habits which are costing you money. Smoking and drinking are two habits which are not doing you any favours health-wise, and they’re probably costing you a lot of money as well.
Kick those habits which are bad for your health and bad for your wallet – it’s a win-win situation!
The information on this page has been issued by Maritime Financial Services Pty Limited (MFS). It contains general information that doesn’t take into account your individual objectives, financial situation or needs. It’s important to consider how appropriate this general information is in relation to your situation before making an investment decision. We recommend that you seek financial advice before making any decisions regarding your super or investments. The information on this page is current at the time of publishing.