How to avoid credit defaults this Christmas

For most of us, Christmas is a great time to get together, put your feet up and relax. Whilst it can be a wonderful time of the year, it can also be the most expensive. With so much fun going on, it may be tempting to apply for a new credit card to make the most out of the festive season.

Before getting into more debt, it’s important to be realistic about how much you will be able to pay once Christmas is over and to pay attention to the lender’s terms and conditions, in particular interest rates and interest free periods. Credit cards may be a good way to pay for all the presents and social gatherings, as they are easy and convenient, but they are only a good option as long as you pay off the balance within the interest free period. Unfortunately, the many people will find that they’ll struggle to pay the full amount, which can in turn impact other financial commitments. This could leave you short to pay bills and at higher risk of defaulting once the Christmas period is over.

Research conducted by Equifax (formerly Veda) indicates that Australians applying for credit in the lead up to Christmas are more likely to get into financial strife, with consumers who make applications between October and December having 20% more chances of getting a default in the first 6-9 months after they apply for credit[1].

Having a black mark on your consumer credit report could seriously hinder your future financial plans, such as getting a loan to buy a house, applying for a personal loan or credit card, or even signing up for a mobile phone plan. Lenders check what’s on your credit report before you apply for credit, and defaults (also known as black marks) stay on your credit report for 5 years. Any negative listing on your credit history is considered a red flag by lenders when assessing your loan application, which means you could get your loan application refused because of black marks. As a result, most people want to avoid them at all costs.

There are some tactics you can use this festive season to avoid getting too deep into debt and a default on your credit report:

• Be prepared. Some people put together a Christmas budget, however they fail because it’s too strict or it comprises of good intentions rather than achievable steps. Consider putting aside an amount of money each week to pay for the festive period, leaving the rest free for expenses and recreational uses.

• Be creative with gifts: You could save some money by giving a gift of food or get crafty and make a gift using stuff you already have. If you’re not into crafts and cooking is not your thing, you could also use cash in your reward points to pay for gifts.

• If you are always trying to pay off yesterday’s purchases, don’t ignore your credit card problems. Pushing aside your credit card statements won’t help your financial situation. Take control of your spending while you catch up with your credit card repayments.

• If you are struggling to make repayments, speak to your creditors. Many understand the stress related to the Christmas spending and may be able to offer you a temporary payment plan to help get you back on track.

Reduce the financial hangover this festive season and start today by forming a plan! This should help you stay on top of your spending, lower your chances of falling behind and getting a default, so you won’t need to repair your credit report in the future.