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22 December, 2005

72-Hours to Christmas: making shopping a joy and not a new-year nightmare

A leading financial counsellor has warned that social pressures, expectations and slick advertising can put people in over their heads at Christmas.

Wesley Mission financial counsellor Elizabeth Terry says consumers should consider the cost of credit cards use in the last few days of Christmas shopping and should not rely on minimum repayments.

To help consumers, Ms Terry has produced a Top 10 hints to make Christmas shopping a joy and not a new-year nightmare.

“Social influences and expectations, advertising and the expectations of family members are some of the reasons why people overspend at Christmas,” Ms Terry said.

“Some of us feel that we are not adequately expressing our love if we don’t spend big on families and friends. And if you’re running around shopping during the next 48 hours the time pressures are even greater.

“Access to easy credit in the belief we will be able to meet minimum payments can often belie the fact that minimum repayments do not really service the debt.

“As credit interest is charged daily on a credit card or line of credit, a reliance on minimum payments will mean the debt will increase by the interest alone even if no more purchases are made.

“If you cannot pay the whole amount of the credit card debt off each month it is important to pay as much as possible to reduce the daily balance and therefore the interest.

“You don’t have to wait for the due date to do this: you can start making payments before that date, which will reduce balance and reduce interest, as long as the minimum is paid by the required date so there won’t be any arrears.

Ms Terry says it’s vital to produce a money plan (budget) before borrowing to ensure your spending stays within your income. The money plan will also help you assess your ability to service a loan or credit card.

“If it doesn’t work out on paper, it will not work out at all in real life,” she said.

“A budget will increase your awareness of all your expenses and enable you to look at these expenses in relation to your income and to keep within your income. Some expenses such as rent or rates can’t always be altered. Some expenses such as electricity and telephone can be changed by how much you use them.

“A budget works best if the money plan is based in accordance with your income period. That is, if your income is received fortnightly, calculate your expenses on a fortnightly basis. You may not pay debts fortnightly, the idea, however, is to work out how much of your fortnightly income has to be kept aside until the bill comes in.

“To work out the income period cost of each item of expenditure, break it down to the income period. For example the electricity account may come in every three months (12 weeks) and your income is fortnightly, so you divide the cost of the electricity account by 6 to find out the amount that has to be kept aside until the bill comes in.”

Elizabeth Terry’s top 10 hints for Christmas shopping:

  1. Prepare a comprehensive budget taking into account all living costs and repayment amounts you have to make. This is the most important thing to do before you spend any money.
  2. Plan ahead of time what you can afford. If you can’t afford a gift, you may be able to do something for someone such as cook them a nice meal.
  3. Discuss with family and friends what you can afford and explore the option of joint gifts with other family members.
  4. Don’t rely on credit to buy gifts thinking you can pay later, if it doesn’t fit in your budget, you won’t meet the repayments.
  5. Be aware of interest free periods on items and check the type of borrowing: if you can pay it off in the time period with no interest. If you do not pay off in time the interest may go back to the start and you will be paying at line of credit charges — it is like a credit card and interest will compound.
  6. Credit card interest charges compound so don’t rely on minimum payment. If you do use credit check your budget to see if you can afford to pay it back and not incur interest or too much interest.
  7. Next year lay-by items: gifts especially for children can be kept at the store out of sight of the children.
  8. Make Christmas cards or have children involved in making cards for family and friends.
  9. Try to buy gifts during the year when items are on special. Look for bargains and lay-by.
  10. Be careful if you buy a mobile phone remembering that it may be on a contract and that a disconnection fee may be charged if the contracted amounts are not paid.

 

For Further Information

Elizabeth Terry
 (02) 9951 5559
0410 692 670
Graeme Cole
Public Affairs Manager
Wesley Mission		 (02) 9263 5350
0408 470 722

 

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