They call it the season for giving, but this can mean you’ll be giving back in interest repayments for months to come, so I’ve explored some of your options.
Thousands of Aussie’s go into debt over the festive season, so it pays to be smart about what type of debt you have and how to manage it.
Regular saving throughout the year by planning for Christmas expenses in advance is the way to go, because you’re not paying any interest – in fact you should be earning interest using a savings account! This can be easier said than done, so falling back on borrowed money can be an easy solution.
Personal loans and credit cards are two ways to help you pay for Christmas. While often interest rates for personal loans are lower than credit cards, they aren’t always, so it’s worth shopping around and weighing up the differences so you choose what’s right for you.
A good value option for longer-term loans and those who like a structured repayment plan.
- Gives certainty around how much you can borrow and spend, so you can budget for your Christmas accordingly and within those limits.
- Gives you access to cash, rather than just credit which may be necessary for some gifts or purchases.
- You will know exactly how much you will need to repay and how long it will be until you become debt-free.
- Interest rates on personal loans are typically lower than credit cards.
- Can stretch out your debt over a longer period of time unless you choose a loan with flexibility to pay off your loan sooner (something you should check before borrowing).
- These loans are generally unsecured and so they have a higher interest rate than a secured loan. If you have something you can secure against the loan, such as a car or valuable piece of jewellery, it might be worth securing your loan to get a lower interest rate.
- There may be fees and charges on top of the interest rate, e.g. most personal loans may charge an establishment fee and a monthly fee and can vary a lot, so make sure you do your research.
Not ideal for access to cash but can offer good value for money if you find a no interest rate promotional deal and pay it off quickly.
- Some credit cards offer a 0% Balance Transfer period for between 12-24 months for any existing debt or purchase offers with an interest free period for up to 12 months, so you might be able to avoid paying interest at all if you can pay off your debt quickly.
- If cash flow is a problem, your minimum repayments may be lower than a personal loan.
- There’s no pay back deadline on credit cards, which means your debt can stretch on and grow over an undefined period of time, costing you a lot more in interest.
- If you need cash, using a credit card can cost more in fees and attract a higher interest rate. Cash advances also don’t have an interest free period so you’re charged interest from the day you withdraw it on the cash and .
- Interest charges may be higher than a personal loan.
- You may be tempted to continue spending on the card once you’ve paid off your debt unless you close it down when it’s no longer needed.
If you have already racked up some debt it might be worth looking at your debt consolidation options, and start planning now for next year!
Did you go into debt this Christmas? What will you try and do differently in 2015?
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