Christmas and Debt: What are the Effects into the New Year? 

It’s coming to be that time of the year again where the family and friends come together to celebrate the festive season. The year has been hit hard with a recession looming, continuous interest rates rising since the start of May, and household cashflow becoming increasingly restricted as a result. This is putting homeowners under mortgage stress by the time Christmas comes around, impacting their financial situation.  

As much as we all would love to treat the family to glowing and expensive gifts, it’s also important to understand what the effects are of using Buy Now Pay Later (BNPL) services and credit facilities. Here are a few questions you might want to ask yourself: 

Q1) Do you know how long it will take to repay your purchases? 

Q2) Have you thought about what the impact of having to pay for this over a longer period and the impact of additional interest rate repayments?  

Q3) While BNPL services seem convenient, repaying festive season debts reduces the new year’s wealth goals as the previous festive obligations are required to be repaid. Have you considered whether these purchases will impact on other goals or obligations that are important to you? 

Information provided from the Australian Bureau of Statistics reports that the months leading towards Christmas, Household and Personal Goods has increased in debt since 2019. The additional financial stress to repay bills can also result in unwanted interest and account fees as a costly reminder of the festive season. Some BNPL organisations charge a monthly account fee or interest fees, which can worsen your financial hangover into the new year, leading to consistent late fees or missed repayments.   

So, what can you do? 

Before you start a spending spree, there are some things that you should consider, including: 

• What does your household budget look like if you were to use a BNPL organisation? 
• Is this something that is a need or a desperate want? 
• Compare alternative products that are on the wish list for cost. Is there something cheaper? 
• Budget. What is your current Christmas spending allowance? 

Research your situation

Getting the pen and paper might be a simple method sometimes to understand what the costs are, but there are also other handy tools to use to understand your financial situation, such as: 

• ASIC MoneySmart Budget Planner
• Excel Spreadsheets 
• My Prosperity

My Prosperity is recommended by many Financial Advisers including those at Vision Property and Finance. For more information about the benefits of My Prosperity, please check out this clip and give us a call -> Vision Property and Finance – Wealth Portal 

What are the benefits to sticking to a budget? 

As it is great to buy gifts for the festive season, sticking to a budget will reduce the stress of any repayments in the new year. The savings from the budget can be put towards your other goals that you have been meaning to do, whether it is holidays, upgrades or growing your family’s wealth. Budgeting helps you to feel in control of your finances and helps create a clear idea of your income and expenses over the festive season.  

To begin budgeting, work out how much you can afford on Christmas this year. Start by factoring in your income and savings, and compare this against your expected expenses for gifts, decorations, food, travel, bills and all other costs. Next, you should track your spending throughout the festive season, to avoid going over your budget this Christmas. This involves setting a limit on your shopping, so that you aren’t tempted to spend more than the goals set within your budget. 

It is important to remember that creating a budget won’t solve all your money problems, but it is an important step to determine your financial health and financial stability. If you need help with creating a budget, or sticking with one, Vision’s Financial Experts are here to help. Get in contact today! 

Most importantly, enjoy the festive season! 

Sometimes it can be difficult to remember the joys of the festive season with the financial stresses in the background. But it is also important that you remember to enjoy the moment with friends and family. It is the time of the year to relax and unwind after another busy year, so make the most of it and enjoy the memories. 

Talk to Vision 

Are you reviewing your financial situation as the end of the year draws closer? 2022 has been a stressful year, both mentally and financially. At Vision, we understand that rising rates, rising cost of living, home loan repayments and Christmas debt may be a concern for you. Vision Property & Finance has the knowledge and experience to help you review your current financial situation and help guide you through this tough cycle. Contact us today.