Christmas spending threatens to dig a debt hole in households

Cost pressures are piling up in households, and that’s before the Christmas spending surge, but there are ways to prevent a debt spiral.

It’s beginning to look a lot like a dangerous Christmas is looming for Australians who are juggling debts.

Households already under pressure from fast-rising inflation and interest rates are entering the highest-spending period of the year, and people who splurge more than they earn risk sinking into a debt spiral.

The simplest solution to avoiding unwanted Christmas debt is spending less, money specialists say, and many Australians are already on this path.

New research from Aussie Home Loans has found seven out of 10 Australians are reducing spending on holidays and gifts this Christmas.

MyBudget director Tammy Barton says as many people brace for an expensive festive season, it’s possible for people to find “quick wins” to keep debt controlled.

“Savings won’t only be found by changing our shopping behaviour when it comes to Christmas presents,” she says.

“We can also save a lot of money by looking at other ways we can cut back and save on our household bills – such as turning off that extra fridge or freezer and shopping around for insurance.

“Cutting back on higher priced goods and services, switching to cheaper brands and searching for those bargains to help navigate the household financial pressures makes great sense.”

Angela and Ben Gray, pictured with children Sienna and Parker, are saving money this Christmas. Picture Dean Martin

Barton says making a list and setting spending limits is vital, as is some belt-tightening that could include taking packed lunches to work, skipping daily bought coffees, temporarily reducing social outings and enjoying “stay home, no spend weekends” for a while.

People also can sell unwanted items and take on seasonal work for extra cash, she says.

“Don’t go crazy on the kids … it’s easy to get carried away.”

PLANNING AHEAD

Angela Gray says she and husband Ben are planning ahead and buying fewer presents this year.

“I am very conscious of the rising cost of living, and I have been more aware of what I am spending this year and it has meant I have deliberately avoided impulse buying during the current Black Friday sales,” she says.

The Grays use credit cards for Christmas but only to earn reward points, and make sure their card debt is repaid before interest costs hit.

Author and financial adviser Helen Baker says now is the perfect time to use reward points.

“All that time gaining points on frequent flyer schemes, credit cards and supermarket loyalty cards can pay off at this moment of need,” she says.

Baker also suggests writing down a Christmas spending plan, with limits you stick to, and considering making your own gifts if you enjoy hobbies such as cooking, crafts or photography.

“Giving someone a gift that you tailored yourself to them can be more memorable and meaningful – you also save plenty of money in the process,” she says.

MyBudget founder Tammy Barton says people can find “quick wins” in their household finances. Picture: Brenton Edwards

MyBudget’s Barton is also a fan of homemade gifts such as baked goods, bath and skin products, potted plants, artworks, crafts and photos.

“Contrary to popular belief, you don’t have to buy a gift for it to be special. In fact, it is often more special if time, energy and love is put into it rather than dollars,” she says.

Shop solo where possible, Barton says. “Whether it’s your kids or friends, while shopping with others might feel social and fun, it is often an easy way to get taken off track from your list,” she says.

Aussie Home Loans CEO of distribution Brad Cramb suggests capping major purchases, pre-buying food and drink and consolidating credit cards.

“Instead of multiple cards to draw from, cut and consolidate to the lowest rate option – especially important if you plan to refinance to reduce debt liability,” he says.

SAVE MONEY ON PRESENTS

• Write your gift list before you go shopping and allocate a dollar amount to each person.

• Get creative. Could you split the price of a gift between family members?

• Suggest to family and friends that you only buy gifts for the children, or introduce a Secret Santa.

• Remember to budget for wrapping paper, cards, postage, decorations and, if you have kids, batteries before you hit the shops.

Source: MyBudget