Christmas can be a very expensive time. Even if you choose to buy for only your closest friends and family, you can soon find yourself a few hundred pounds worse off. On top of that you’ve got the cost of office parties, meals out and seasonal grocery shopping.
Often it can be tempting to use credit cards to cover the cost of the Christmas, in fact, there are many benefits the using a credit card to cover the festive spend. Some cards offer cashback on purchases, interest free introductory offers and even loyalty rewards.
In 2015 almost 14 million Brits (27%) put Christmas on their credit card, with over a third using the plastic to pay for presents and a fifth putting their turkey on a credit card! The average spend was projected at £600 with 1 in 10 exceeding four figures.
To avoid financial issues going into the new year it’s important to ensure that you clear the debt as quickly and efficiently as you can. According to figures from uSwitch, nearly nine million people are still clearing debts from last Christmas. Having credit card debt looming over you for this amount of time can be stressful and expensive.
The national average credit card interest rate is around 15%, which is significantly higher than a typical loan from your high street bank, supermarket or online lender. If you’re only clearing the minimum balance each month the chances are interest will be building on the balance at an almost identical rate meaning the balance is in-fact stagnating rather than decreasing.
Below are a number of top tips to ensure that you’re not left with Christmas debt for longer than necessary:
1. Draw up a budget
Budgeting is preached on almost every finance blog or forum you visit, and there’s good reason for this. A monthly budget allows you to see where your money is going, set financial targets and highlight areas of overspending.
Historically, you’d probably designate a full day to creating a budget however nowadays (thanks to technology) budgeting can be done in less than an hour. The most efficient way to do this will be to open up your internet banking and an online budgeting application like this one (preferably on a separate device). Simply fill in the fields on the budgeting app using the data from your online banking statement.
At the end of the budgeting process you should be able to highlight several areas where you’re currently spending more than expected. You should have an idea of your disposable income.
2. Set a realistic target
Just like your fitness related new year’s resolutions, your finance goals should be realistic. Setting an unrealistic goal is a recipe for disaster, it’ll leave you feeling guilt-ridden and unmotivated.
It’s unlikely that you’ll be able to clear all your Christmas debt in January. Instead, revisit your monthly budget, specifically the disposable income section. Now, take your disposable income and create a monthly target based on this. For example, if your disposable income is £300, set a target of clearing £150 off your credit card debt each month.
Avoid putting all of your disposable income into clearing debt as it will leave you in a vulnerable position if you’re hit by unexpected expenses.
Knowing how much debt you have to clear, and how much you’re looking to clear each month should give you a pretty good idea of how long it will be until you’re debt free.
3. Set up a direct debit
Now that you’ve got your monthly target amount, your next job is to set up a direct debit. It’s extremely important that you set this up to be debited on the day of or the day after your payday.
Setting up a direct debit close to your payday not only gives you the peace of mind that you’ll have the funds available, but it’ll mean that you won’t even notice it leaving your account amongst your other regular monthly outgoings.
4. Over-pay when possible
The quicker you can clear your Christmas debt, the more money you’ll save. This is because interest accrues on the outstanding balance each month. The more you can reduce that balance, the less interest you’ll pay.
The means if you get a performance bonus at work or find yourself with more disposable income than expected at the end of the month, put some of it towards your credit card debt – you’ll thank yourself in the long-run!
In the quest for a perfect Christmas, it can be tempting to turn to credit cards due to their convenience and flexible repayment terms. If you do choose to go down this root it’s important that you create a repayment plan as quickly as possible.
Putting a plan in place will create accountability and give direction. Remember to be ambitious but realistic when setting targets, this will ensure that you remain controlled and motivated. The quicker you can clear the debt, the more you’ll save and the more you’ll be able to enjoy 2017 without the stresses of looming credit card debt.