A wonderful time of year to avoid credit

MANY employees will be feeling a little wealthier and probably a bit under the weather, too, as they trek off on their desperately-needed summer break.

Bank balances will likely be blossoming thanks to extra cash from the boss in the form of holiday pay.

But for those combining this with spending money you don’t have – using your dreaded credit card or buy now, pay later schemes – it’s a festive recipe for disaster.

You’ll end up dudded, just like you do when you crack open those useless bonbons.

While I don’t plan to be the Grinch, some of us need to take a reality check and rein in spending.

The nation already has amassed a whopping $51.5 billion on credit card debt and $31.9 billion is accruing interest.

Many credit cards have interest rates above 20 per cent. Those silly enough to spend on these cards but unable to repay them within the interest-free period will pay a premium.

RateCity figures found people who rack up $1500 on a no annual fee credit card with an interest rate of 22 per cent, and who only make the minimum repayments, will be hit by $1750 in interest charges and take eight years and eight months to pay it off.

Mortgage repayments, energy bills and school fees are never far away, and before you know it you’ve blown your holiday pay. You’ve never wanted to go back to work so quickly, desperate to get your next pay cheque.

By using credit, you are effectively just delaying playing catch up, chasing your tail trying to pay off crap you’ve likely bought in the run up to December 25.

Just last week I had someone tell me they would not be using debit to buy Christmas gifts.

“I can’t do that; I have a mortgage,” she said, almost like I was the clueless one.

If every Aussie put their credit card away this month and relied on paying by debit, there would be much less financial heartache in 2019.

But retailers want you to splash cash like it’s going out of fashion and the banks also want you to spend up big.

By racking up those hefty credit card bills and failing to pay them off at the end of the month, you are making those “greedy” bank fat cats – as Commissioner Kenneth Hayne labelled them in the royal commission – richer. Buy now, pay later schemes are also disastrous if you can’t meet strict repayment criteria.

For as long as I can remember, I have set up a separate bank account for Christmas and new year’s spending, tipping in $30 a week from my pay. I’m now sitting on a nifty little pot of cash totalling $1560.

While it’s too late to start an account for this Christmas, it’s a great time to start up one for next Christmas.