The end of year celebrations are over but you’ve still got a huge financial hangover that is lingering — and it’s a problem that isn’t going away.
Funding Christmas festivities pushed Aussies $24.3 billion deeper into debt as they splurged on credit cards, revealed comparison website Finder
That level of spending works out be more than $1,700 per card.
With an average 55-day interest-free period, it’s expected the interest from Christmas shopping will cost Aussies $194 million, Finder found.
But experts reveal the smart way to get your finances back on track from cutting up your credit cards to doing a stocktake on your statements.
KILL YOUR BILLS IN 2021
Don’t pay a cent more than you should on basic utilities including energy, internet and mobile bills, says finance expert and campaign director at One Big Switch Joel Gibson.
“Just shopping around on these three bills can save an average home about $1000 a year,” he told news.com.au.
You don’t need to lock yourself into a 12 or 24 month contract anymore, he adds, just go month to month.
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CUT UP YOUR CREDIT CARDS
In good news, Aussies have closed down around one million credit cards in the past year as they have become more cautious with their money, explained Mr Gibson.
“It’s a silver lining from the pandemic. At 20 per cent interest, a $3000 credit card balance can cost you over $600 a year. That’s almost half of an average power bill. It’s dead money,” he said.
But if you’ve built up debt and need to get rid of it, there’s a few options on how to deal with it.
If you’re super-disciplined, you can move it to a 0 per cent balance transfer deal and pay no interest for up to 30 months, said Mr Gibson.
“But you must not use the new card — don’t even activate it,” he warned.
However, if a new credit card is too enticing, opt to consolidate your debts into a single low-rate loan and pay that off in instalments, he said.
“If you have multiple debts and you don’t want to re-finance them, there’s the ‘avalanche method’; start with the debt that has the highest interest rate and pay that down first, then move onto other debts with lower rates,” he said. “This is the most rational approach as the high-interest debts are doing the most damage.”
But some people find this approach too daunting. So there’s the ‘snowball method’, where you start with the smallest debt and pay it off and continue working your way up the ladder.
Leah Oliver, founder of Minnik Chartered Accountants, is fan of this strategy and recommends setting up weekly auto transfers from your bank account.
“Weekly repayments are recommended because the amounts are smaller and less recognised when they disappear from your bank account,” she said.
“Meanwhile as you are progressing with your repayments, you need to make a conscious effort to discontinue use of the cards. Even better, cut them up and when balances have been repaid, close the accounts.”
Leaning on these buy now, pay later services is a recipe for disaster.
They can leave people feeling overwhelmed for months and continually playing catch up, said Ms Oliver.
“It’s like living in the past and never being able to get ahead, with simple savings, establishing an investment portfolio or even taking a well earned holiday,” she said.
“When spending online with cards and pay later facilities, it doesn’t feel like spending at all.”
It’s important to build your “financial house from a clean slate”, added Ray Jaramis, head of financial wellness at people management platform, Employment Hero.
“Go into any shopping centre and at the checkout you’ll see all of these tempting ways to not pay for your purchases upfront. Clearly these are designed to help you spend more when you might not have the money to pay it off,” he said.
“This spending trap is easy to fall into if you don’t pay attention to your spending habits. If you really feel like you have to have a bit of retail therapy make sure you pay with money you have rather than money you’re about to have.”
DON’T IGNORE YOUR STATEMENTS
Take a long hard look where you spent your money over Christmas.
“The trick is to be in tune with your spending, and understand where your money goes. If you busted the budget, know with absolute clarity where the excess went and on what,” Ms Oliver said.
“The best way to avoid this happening in future, is to give yourself access to a capped amount. If the money is there, it will be spent. If the money is not there, you will be more cautious with your spending, taking care not to exceed the limit.”
Take advantage of apps that give you cash back when you shop with your favourite retailers, said Natasha Janssens, author of The Wonder Woman’s Guide To Money.
Before shopping, make sure you are meal planning and swapping to cheaper brands, she adds.
Watch the school budget blowout out when it comes to the kids too.
“You can save hundreds by buying second hand uniforms — I got over $500 worth for $27, bulk buying snacks and checking for what items you may already have at home,” she said.
It’s a strategy that was popularised by the Barefoot Investor, Scott Paper, and now banks have even started promoting it — offering multiple accounts to divvy up your money for the mortgage, bills and savings.
Mr Jaramis added there are a heap of round up tools available too, where if you spend $3.65, the extra 25c is put into a savings account.