How to avoid a Christmas financial hangover

And that’s not accounting for the money thrown around in the lead-up to Christmas on gifts, food and travel.

It’s been a long and difficult year for many people, so the temptation to make the most of the festive season is understandable.

But whether you’re sitting on a hefty mortgage or you’re planning on buying a home at some point in the New Year, you need to be careful with your finances now to avoid having to wrangle a nasty Christmas hangover.

Resist the temptation to spend more than you’re able to. Consider the ‘envelope’ tactic, where you put cash (I know, sounds old fashioned, but it worked for your parents and grandparents, so maybe give it a try) into a paper envelope each week, fortnight or month, depending on your pay cycle, for discretionary spending. You might have one for Christmas gifts, one for entertaining, one for travel and one for special grocery items.

You can even do this electronically with free, no-frills secondary accounts linked to your main banking transaction product, or numerous lenders now have the ability to have multiple offset accounts so your money is still working for you whilst you save.

When your envelope (or dedicated account) runs dry, you’re done. Don’t turn to credit cards or other get-it-now means, which give you an instant benefit but could cost you down the line when you’re dealing with your bank.

We’re obviously well beyond that now. Aussies trying to secure a loan to buy a home are being faced with some tough realities.

Let’s say a young couple without kids and a household income of $150,000 is in the market for a property. In less than 18 months, their borrowing power has slumped by about $250,000.

Lenders are also being much more cautious given the uncertain nature of the economy and question marks over whether the RBA is done with lifting rates. Any blemishes on your file might make it even more difficult to borrow what you need.

Consider reducing your credit card limit, paying off as much of it as you can, or getting rid of it entirely. It can be a sticking point for some lenders and might be the difference between securing finance or not.

Talk with a qualified mortgage broker about your personal circumstances and come up with a strategy to get on top of your plastic problems.

There’s no doubt these kinds of services are convenient. It’s a great way of spreading payments out over a period of time with minimal additional expense, and allows people to get what they want now instead of having to wait.

But too many of these types of purchasers could make your potential lender nervous. They might see it as a sign that you have trouble managing your finances or have frivolous spending habits.

And even if you’ve not used one in a while, merely having an open and active account with a limit attached to it could count as a debt liability.

Speak with your broker about your situation and the best course of action.

It could leave you with a patchy credit history, which banks will see when assessing your mortgage application.

Some people are big fans of accumulating frequent flyer or rewards points via credit cards with bonuses built in. You’ve probably seen the promotions for them – take out a new card and spend a certain amount, or transfer your balance from another card, and receive a stack of points. It’s enticing and allows you to amass points that can make flying cheaper.

But every single time you apply for a credit card, it’s marked on your credit score file – even if you never take it up. Likewise, if you apply for a personal loan or one of those pay day advance services, it goes on there too.

Most Aussies aren’t aware they can obtain their credit score for free through services like Equifax. Your broker can help you find out what your situation looks like in black and white.

While I realiserealise, we are entering the season of indulgence, it should also be a time of reassessment. Treat this festive period as a moment for double checking your financial health and applying some restraint.

Above all else, be sure to contact our team here at Intuitive Finance. We can make sure you stay the course throughout December and January so that your spending remains in check. The hard work you do in Christmas means that, come the New Year, you’ll be ready to move forward on your lending plans with confidence.

It’s not fatal but now is the time to plan and speak with us to steer you in the right course of action. The only, and best advice I can give here, is don’t avoid the hard conversation, deal with it now and you’ll be far better off in the long run.