Christmas done – check. Holiday over – check. Big debt headache if you’ve overspent during the festive season – ouch!
Starting the year saddled with painful consumer debt is common.
Reserve Bank of Australia data shows we collectively owe $43 billion on personal credit cards and $27.5 billion of that is accruing interest often near 20 per cent.
Credit card debt has dropped about $2 billion in the past year, but the gap has been filled by a surge in buy now, pay later schemes such as Afterpay and Zip Pay.
RateCity director Sally Tindall said with consumer debt it was often a case of “pick your poison”.
“You can get into trouble whether you are using a credit card, buy now pay later service or a store card,” she said.
Getting out of a debt hole can seem daunting but it doesn’t have to be.
Take stock, find out exactly what you owe and its interest rates, understand your options then make a plan to repay.
Aim to pay off the highest-interest debt first as this is hurting you the most.
“Try and stop all discretionary spending, put Afterpay on hold and stay away from the shops,” Ms Tindall said.
“Start cutting out luxuries – perhaps have no takeaway coffees for a month, don’t eat out for the month or try to have ‘no spend days’ one or two days a week.”
Every dollar saved will help, and Ms Tindall said people could raise extra funds by selling unwanted Christmas gifts or other items.
High interest credit card debt can be switched to a low-rate card, a balance transfer card offering zero per cent interest for several months, or a personal loan with regular repayments at lower interest rates.
“If you need to, seek some personal advice to work out what fits your finances,” Ms Tindall said.
Financia managing director Angelo Benedetti said his finance broking and advice firm had been fielding phone calls from people who had spent too much at Christmas.
“There’s a lot of Afterpay debt at the moment that people have taken up because it’s easy and convenient,” he said.
Mr Benedetti said consolidating debt into a mortgage could save a pile of interest if you were disciplined.
“It’s dangerous if you are just repaying the bare minimum – if you are refinancing a loan and stretch the term over 30 years your repayments are less but your overall interest is higher,” he said.
“But if you hit the loan hard and pay off every spare dollar you get, you will be in front by a mile, especially with rates as low as they have been.”
Mr Benedetti suggested cancelling a problem credit card “or reducing the limit to $500 as an emergency fund”.
“If you go back to your old ways you will be calling us in 12 months’ time in more trouble,” he said.
Originally published as Cures for a holiday debt hangover