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Kirsty Lamont
Money Expert
13 December 2018

With Christmas just around the corner, you’re probably starting to feel the festive cheer, and if you’re like many Aussies, a little bit of financial strain as well.

In fact, at Mozo we found that 73% of Aussies are feeling at least a little financially stressed this Christmas which means many families will probably be leaning on credit to get through the festive season.

Now, this isn’t necessarily a bad thing. Credit and debt are tools that can be used to help you with big milestones like buying a house, a new car, doing a renovation or plenty of other life events, like a big Christmas celebration.

But there’s a right way and a wrong way to use credit to get through major spends, so here are some top tips to come out of Christmas with your budget - and your credit history - intact.

Don’t give in to excessive Christmas spending

It seems obvious, but the first thing you should look at is just how much you’re planning to spend over Christmas, and make sure you’re not overdoing it. Not only does this mean setting a limit for how much you’ll spend on each person and shopping around for deals on Christmas lunch, but when using credit, you should also keep an eye on your credit limit and try not to get too close to reaching it.

And don’t worry - if this means cutting back on presents this year, you aren’t alone. 1 in 3 Aussies are planning to spend less on their partner this year, and 1 in 4 are spending less on their kids. A smaller, less expensive gift that comes from the heart is often preferred anyway, so don’t stretch your budget unnecessarily this year.

Make sure you’re using the right kind of plastic

If you’re giving your credit card a workout over the festive season, it’s important to make sure you’ve found the right match for your spending needs. If you’re pretty confident you can clear your balance before the end of the month, then a rewards credit card can add value to your spend, or an option with no annual fee will keep costs right down.

However, if you know you’ll end up carrying a balance for a few months, a credit card with a low interest rate might be the perfect shopping partner to minimise the damage to your budget. When it comes to managing credit effectively, half the battle is choosing the product that fits you best, so make sure you get this step right.

Budget for loan repayments first

While ticking items off your Christmas shopping list might be top of mind this December, don’t forget about all the other financial commitments you need to keep track of. It’s particularly important to keep on top of things like loan repayments, which will affect your credit report.

If you make missed repayments a habit, it can look bad on your credit history and cause trouble when you apply for a personal loan or home loan later on. So, make sure you allot space in your budget for these long-term commitments before you decide how much you can spend this Christmas.

Choose new credit options wisely

Take care if you have been in the habit of dealing with your post-Christmas financial hangover by rolling your unpaid credit card balance to a new credit card with a 0% balance transfer. Michael Blyth, credit reporting expert from the Australian Retail Credit Association warns, “New legal requirements mean that credit card providers have to consider whether you will be able to repay the full value of your credit card limit within three years, even if you don’t plan to spend the whole limit. Just because you were able to take out a credit card with a limit of, for example, $8,000 last year, isn’t a guarantee that you’ll get approved for that much going forward.”

If you’re considering picking up a new credit card or even taking out a small personal loan this Christmas, make sure you’ve thought the decision through first. Every time you apply for a new source of credit, it gets marked down on your credit history, and making too many applications can damage your credit.

So try not to panic and start applying for credit cards left and right when the Christmas shopping starts piling up. Instead, remember that credit is a strategic tool to manage your budget and keep your credit report healthy, not an excuse to rack up a bill you can’t hope to pay off.

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