Planning ahead to avoid a holiday hangover
The annual Christmas credit card splurge can end up giving us a hellish holiday hangover, when the bills come home to roost, writes RICHARD MEADOWS .
Most of us have returned to the daily grind, exchanging lazy days at the beach for office cubicles.
The kids will be back in school next week. Already the Christmas holidays start to seem like a distant memory.
Until the first credit card statement of the year arrives, that is.
This rude reminder of the silly season splash-out is often accompanied by a dry mouth, sweaty palms and a sudden wave of remorse.
New Zealand's credit card statistics tell the same story each year.
In the last few months of each year, our collective debt surges by about a quarter of a billion dollars.
Last December it topped $5.77 billion, reaching new heights of consumer excess.
Raewyn Fox, chief executive of the Federation of Family Budgeting Services, deals with some of the aftermath of the annual splurge.
She says that New Zealand has the perfect cocktail of conditions for a hellish holiday hangover.
Unlike the other side of the world, Christmas takes place over a long holiday break.
That means the usual festive expenses are compounded by having to take time off work to look after kids or pay for holiday programmes.
Many workers get their Christmas pay packet in advance so they can cover the costs.
"Then the bills come along on what would have been payday and you don't have money to pay them," says Fox. For families in particular, there's no respite.
"Just when you're trying to catch up with the power or rent or whatever it might be, wham! here comes the back-to-school costs."
For some, the hangover will stretch throughout January and February, and often much longer.
Here's our 10-step road to recovery for curing the post-holiday blues once and for all:
1. Change your mindset Do you feel a twinge of deja vu alongside the sense of impending doom when opening the credit card bill?
Matthew Nutter, managing director of debt management firm KiwiDebt, has dealt with recidivist debtors before.
"Until they actually make that realisation in their mind that they have a debt problem, no amount of work will get them out of it," he says.
"Once you've recognised that, it's a matter of tackling it in a logical way."
2. Don't ignore bills iding under the bedsheets and trying to will unpaid bills out of existence is not a valid debt-management strategy.
Penalties and interest costs will soon start to mount up, and creditors will be baying for blood in no time.
Sometimes the fallout can last as long as six months, says Nutter.
"Of course, those people that get on to it soon enough can get a handle on things."
3. Don't borrow more This should really go without saying. You'll only tread water or sink if you don't stop racking up more debt.
4. Prioritise repayments "For families, the rule of thumb is, what's going to affect us most and first?" says Fox.
There's no point trying to save your flash TV from being repossessed if the power's about to be cut off or an eviction notice is stuck on the door.
The key is to weigh up what's going to have the biggest impact and deal with that first.
Some costs, like rent and power bills, are unlikely to have immediate penalties or interest charged.
Others, such as hire purchase and credit card debt, begin to bite very quickly.
5. Get help Of course, calculating all of this can get very tricky. When there are several factors at play, it's not as simple as paying off the highest-interest bearing debt first.
Family Budgeting Services will help with sorting out debt repayment schedules.
Christians Against Poverty runs regular three-day seminars which also offer free advice.
Then there are paid services like KiwiDebt available, which take an actively managed approach to sorting things.
6. Cut spending Christians Against Poverty encourages its clients to take an honest look at their money situation, and then plan accordingly.
Spokeswoman Julie Navatsyk says that often involves finding ways to cut down on expenses and outgoings.
"Sometimes you can negotiate down your cellphone bill, or your insurance," she says.
"Maybe it's just tightening up a little bit on your going out and spending, on your entertainment - practical things like that."
7. Talk to creditors "The best way to stop someone drowning is to take your foot off their head," says Nutter.
Quite. If you're deeply indebted, then it's your creditors who will ultimately determine whether you sink or swim.
The good news is, they're more open than you might think to compromising on interest charges and penalties if you're committed to a repayment plan, particularly one managed by a third party.
"On the whole, we've had a really good response from creditors.
"All they want to do is have their funds returned to them," says Nutter.
It's a win-win for all, so be upfront with who you owe and try to work out an affordable arrangement.
8. Transfer your balance If you've run up a hefty credit card bill, consider transferring the balance to a lower-interest card. Some are as low as 2.99 per cent.
"There are some good offers around these days but make sure you read the fine print," says Fox.
Often the low-interest period ends after six months or so and new spending attracts the regular interest rate.
Nevertheless, a balance transfer can provide some much-needed room to breathe.
9. Think twice about consolidation Debt consolidation certainly sounds attractive - get all your annoying debts rolled up into one convenient loan.
"Sometimes they're a good idea and sometimes they're really not," warns Fox.
While the interest rate is often low, the term of the loan is usually over a much longer timeframe.
What that means is you might actually end up paying more in the long run.
Sometimes it will be worth consolidating in order to avoid penalty payments or harsh interest rates on current debts.
"It's quite a complicated calculation to work out, so get some advice," says Fox.
10. Plan ahead "Right now, you're pretty clear about how much Christmas and the holidays cost," says Fox.
"While it's fresh in your mind do the calculation, and figure out how much you need to put away each week so you're not in the same position next year."
Otherwise you will end up as another statistic - pushing the annual spike in credit card debt to even greater heights.