The smarter ways to make ends meet at Christmas

It hardly needs saying that it pays to avoid high-interest borrowing, be that credit cards or payday lenders, especially at Christmas.

Those who pay top dollar over the festive season to finance their purchases, even the necessities, presumably feel they have no other choices.

Few would sample the delights of the payday lender, whether online or in the shopping strip, if they thought there were alternatives.

Our sister consumer body One Big Switch has been crunching the numbers and finding the true cost of Christmas can be even more depending on the type of borrowing.

Their research finds there are smarter and cheaper ways to pay depending on what you need to buy, for how much and how long it will take to repay.

For example, a $1000 racked up on a high-interest credit card, if you include the $200 annual fee, could if you take 12 months to repay end up costing $1416.

Payday loans can be even more costly and tricky. The government’s MoneySmart website says a payday loan can amount to $2000 and is paid back within two weeks or one year. Given establishment fees and high monthly interest rates, that sum could cost you $3,360 if you repay over 12 months.

For those in trouble and borrowing from Peter to pay Paul as the expression goes, there are other options such as speaking to the free financial counsellor services, no interest loans and low-interest loans. See more here and if in financial stress, take action now.

But what if you need just some credit or borrowings to tide you over the holidays? How do the different options stack up, especially for older Australians?

A report last year from the Salvation Army’s Money Care counselling service found those over 55 were getting into more trouble with credit cards. A decade ago, 19% of the service’s clients were in that age, and at the time of the report, it was 26%.

And the most common reasons people had problems with money was because of credit card debt (49%) or personal loans (30 per cent).

As detailed in this blog a few weeks ago, there are smarter ways to pay if you understand how Buy Now Pay Later schemes work and choose to take part.

These are currently not regulated under credit legislation. If you can repay that Christmas spend of $1,000, on items which are covered by the schemes, in a few regular periods over a short period there’s no interest to pay. There are late fees for missing payments, but there’s not the ability to roll over debts into large amounts as with credit cards.

Other ways to pay include debit cards which attract no or low transaction fees and of course good old cash, if you can find somewhere which still takes it!

The fact is though many people will give their credit cards a good workout this Christmas. A good proportion does this as a convenience and will repay 100% within the interest-free period.

Others may make gradual repayments and incur some interest, and that can hurt.

Naturally, it’s better not to blow the budget if you have one and can help it, but if using credit or staggering payments with Buy Now Pay Later make sure you know what’s involved.

It might help you have a happier Christmas and hopefully a less indebted New Year.

Any information is general advice, it does not take into account your individual circumstances, objectives, financial situation or needs.