Finance Your Budget Families to face nasty debt hangover after Christmas, bank warns

Families to face nasty debt hangover after Christmas, bank warns

christmas credit card debt
A nasty surprise may await many families in January. Photo: Getty
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Many Australian families will “spend up big” on credit cards this December and fail to pay off the balance by the time the January bill arrives, ME bank has warned.

With the Christmas dinner demolished, presents unwrapped and the in-laws chased back to their homes, it seems our bellies won’t be the only things fit to burst.

nic emery me
ME’s Nic Emery says it’s important to tackle the debt built up over Christmas.

In the Santa aftermath, and with new year celebrations around the corner, many Australians will be scared to peek at their bloated credit card balances.

But we need to start planning to pay down this debt, or else it will get out of control, ME bank’s head of deposits and transactions, Nic Emery, told The New Daily.

“Australians will spend up big on credit cards this December, much of which will turn to debt come January,” Mr Emery said.

“Families are likely to be worse off, with schooling and holiday care expenses also landing during January, pushing up against Christmas expenses.”

Research conducted earlier in the year by ME bank found that 42 per cent of cardholders ‘revolve’ their debts on a regular basis. This means they fail to pay off the balance when it comes due.

Another survey, conducted by consumer group CHOICE, found that Australians aged 30-49 were the most likely to live off credit cards.

You’ve heard the warnings. Now here’s how to do something about it.

A plan to tackle the debt

On your January statement, you’ll notice the ‘minimum payment’. Paying only this amount is not ideal, as you’ll incur hefty interest in future months.

christmas credit card
Pay more than the minimum, and find the lowest possible interest rate if you can’t pay everything at once. Photo: Getty

“Ideally you repay the debt in full after each statement, or if not then, as soon as possible,” Mr Emery said.

But if you know you’re unlikely to pay off your Christmas debt immediately, then a smart move is to minimise the interest you will incur, he said.

“Switching to a credit card with a low interest rate, even just a few percentage points lower, could potentially save you hundreds of dollars in the new year.”

Mr Emery was referring to a balance transfer. This is where a credit card holder moves their debt to a new card. Many companies offer interest-free periods of varying lengths, so be sure to compare the market (and check the annual fees).

If you’ve already got multiple credit cards, consider paying off the ones with higher interest first and then cancel each card as you go, Mr Emery said.

Australians struggling with debt can contact the National Debt Helpline on 1800 007 007 or online.

Build up your savings

Don’t slack off when the debt is under control. That will be your chance to get ahead.

“Once you’re in a position to start saving, consider making automated deposits into a high-interest savings account or term deposit so you can purchase Christmas expenses from savings not credit in the future,” Mr Emery said.

A recent report by MLC Advice found that up to $9000 dollars in simple savings could be hiding in your weekly finances. The new year could be a perfect time to discover them.

The financial advice firm suggested that households:

  • Drink less takeaway coffee. Two coffees at $3.50 each equals about $2,500 a year, MLC said.
  • Eat less takeaway food. Cutting just one meal every fortnight could save an Australian family more than $1300 in 2017, MLC said.
  • Find a free way to exercise. Many gyms sign up dozens of people who rarely or never actually attend. Cancelling a membership could save $884 a year, MLC estimated.
  • Pool internet with a neighbour. This may be possible for Australians living in apartments — and could save $360 a year, according to MLC.
  • Cut back on subscriptions, such as Netflix and Stan. This could save you $144 a year, MLC estimated.
  • Do a monthly check of direct debits. You could be automatically sending too much money, or to the wrong people. MLC’s estimated savings: $120 a year.

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