Experts give their tips on avoiding a Christmas debt

Some simple money strategies can save Christmas by preventing a debt blowout that lingers long into the new year.

Debt pressures are set to spike as the biggest shopping season of the year combines with Australians’ temptation to end 2020 with a celebratory spending splurge.

As COVID restrictions ease everywhere, some households continue to struggle with reduced incomes while others have built up extra savings thanks to big-ticket costs such as overseas travel being banned.

The latest Bureau of Statistics data shows Australians’ credit card debts accruing interest have dropped below $20 billion for the first time in 16 years.

However, there has been a surge in other short-term debt through buy now, pay later services such as Afterpay and Zip Pay.

Beyond Bank Australia’s general manager of customer experience, Nick May, says while loan repayments are rising amid a reduced appetite for debt and record-low interest rates, the recent Black Friday retail event saw “unprecedented credit card sales”.

“In recent times, we have seen an increase in both car and personal loans,” he says.

May says people can avoid a December-fuelled debt blowout by sticking to a Christmas budget with spending limits per person.

“It’s great to be generous but your friends and family don’t want you to clock up debt in the process,” he says.

People can also be creative with presents without spending big.

“Activities, family outings or even a donation to a charity or local community group can bring a smile to anyone’s face,” May says.

Ella Bramwell, 21, says the pandemic changed her views about Christmas spending and debt. Picture: Emma Brasier

Ella Bramwell, 21, says the pandemic has changed her views on Christmas spending and debt.

“Up until now, I have never really kept tabs on what I spend on Christmas presents but this year I’m certainly aiming to keep to a budget,” she says.

“I use my banking app on my phone to keep track of purchases and I have a limit in my head that I don’t want my savings to fall below. That stops me from overspending.”

Jacaranda Finance head of growth Kurt Bornhutter says there has been a 15 per cent jump in people borrowing money for domestic holidays, but borrowers are generally trying to pay down their debts faster before Christmas.

“Look at what you are able to spend, and make a careful decision about your commitment levels,” he says.

“You can potentially spend less and still have a great time.

“Do a debt check on where you are currently sitting and what your liabilities are.”

Jacaranda Finance head of growth Kurt Bornhutter.

Minnik Chartered Accountants founder Leah Oliver.

Minnik Chartered Accountants founder Leah Oliver says credit cards are “the worst invention ever” and people should avoid them during the Christmas period.

“We don’t want to be repaying debt for something that’s been consumed,” she says.

Oliver says people can reduce debts caused by the festive season by using a family Kris Kringle system where each person buys one person a quality gift, and sharing the cost of food and drinks where everyone brings a plate and bottle.

MyBudget founder Tammy Barton says the Christmas credit crunch usually hits in January when bills arrive.

“Given the state of uncertainty, this is not the time to charge up your credit card,” she says.

Barton says some lenders have already launched their New Year credit card balance transfer deals offering zero interest, but consumers should beware that these can be a trap for those who don’t pay the lenders back in the interest-free period.

“They don’t want you to be free of debt – they want you to use their card instead of their competitors,” she says.

PREVENT A DECEMBER DEBT BLOWOUT

1 Only spend what you can afford on gifts.

2 Compare prices online before spending money.

3 Share the load among family members for food, drink and gifts.

4 Check your credit score online for free to prevent small debt problems from multiplying.

5 Start thinking about your 2021 financial goals, to put this month into perspective.