This Diwali saw record sales across various categories as a number of online shopping websites and retail stores offered deals and discounts. Banks and NBFCs also made Diwali shopping easier on our pockets by offering co-branded benefits, direct rebates and no-cost EMI options. Such festive season offers allowed a lot of people to purchase items at surprisingly low prices.
However, deals and discounts also encourage impulsive buying and a lot of people ended up buying things that they don’t really need. Some of you may also have taken extra debts to cover festive season shopping or put too much on your credit cards. So, if you are facing the much-dreaded festive season debt, here are a few tips to help you overcome it sooner.
How to Get Out of Festive Season Debt?
There are multiple ways to come out of debt such as credit card balance transfer, personal loan or a top-up on your existing personal loan.
If you think you can pay the amount in the near future without going for a loan, then you should go for a balance transfer. If you have credit cards from multiple providers, look for balance transfer deals on any of the cards. A balance transfer allows you to transfer your outstanding balance from one credit card to another. You can either choose to transfer the balance and add it on to a card that charges a lower rate of interest (or a teaser rate on balance transfer) or apply for a balance transfer on EMI and pay off in instalments. In both cases, you would save on the total interest outgo.
Finance charges on credit cards can go over 40% per annum. Personal loan’s interest rates, on the other hand, start from about 10.99% p.a. Clearly taking a personal loan is better than carrying the balance on your credit card. If you have a good credit score and a good relationship with the bank, you might be able to take a personal loan at a low rate of interest. A personal loan is one of the most viable options to get rid of your credit card debts or to consolidate multiple small debts into one. When taking a personal loan, try to choose the shortest tenure that you can afford to. You might be paying a higher EMI but you will be paying less interest overall.
Top-up on Existing Loans
If you already have a home loan or personal loan, you can consider taking a top-up on the same without adding on to your list of debts. The top-up can be availed at the same rate that you are currently paying and there will be no hassle of additional documentation. Such loans are very useful in consolidating multiple debts or dealing with a credit card debt that is no longer manageable.
Borrow Money from Friends or Relatives
You can always borrow some money from your friends and relatives to tide over financial emergencies like this. When borrowing from friends, family or relatives let them know how soon you are going to repay them. Don’t ask for too much and don’t take rejection personally. This option should not be misused or taken lightly as borrowing money from friends or relatives may strain the relationship.
Approach a Credit Counsellor
Many banks have set up FLCC, Financial Literacy and Credit Counselling Centre, where customers can approach with their financial problems and seek expert advice. The FLCC personnel are usually former branch managers and hence are able to get you a reduction in interest rate as well as allow rebates on punitive charges. If you are not sure about how to manage festive season debt, paying a visit to a credit counsellor could be a good idea.
Other Tips to Help You Get Out of Holiday Debt
Here are a few more steps you could take to clear small debts post-festive season, without having to take additional loans:
Review Expenses – The first step is to review all your credit card bills and expenses. Sometimes the card providers make unwarranted charges. Reviewing will make sure that there are no false charges on the bill, adding on to your expenses.
Use the Annual Bonuses – If you are going to receive an annual or statutory bonus, you can use the funds to reduce your debt.
Get Part-time or Freelance Job – Additional funds earned via seasonal or freelance jobs can be used to come out of debt faster.
Use the Emergency Fund – If you have saved up enough money for a crisis we suggest you use a part of it to pay off the debt. Do not exhaust the entire emergency fund as you might need it later.
What not to Do
Avoid making the following common mistakes.
Continuing the Borrowing and Shopping Cycle – When you are already in debt, you should not borrow money only to spend it on shopping again. This will create a debt spiral and you may end up in more debt.
Going for Yet another Sales Spree – Diwali sales are over but other sales will take its place. So, you should not shop just because there is a sale. If you continue to go on shopping sprees, coming out of debt is nearly impossible.
Shopping After Coming Out of Debt – Another mistake people make is that they go back to their old shopping ways as soon as they come out of debt. Don’t do that. You should remember that you have just come out of debt. You don’t have any savings. If you go on spending then in case of a crisis you will land into far deeper debt. You should instead focus on saving your money for future use.
All festivities and celebrations call for some extra expenses and a little debt. But if your debts have gone out of hand after the festive season, you can take help of balance transfers or personal loans as mentioned above. Though the ways of managing your debts are plenty, you should not make it a habit. Learn from your mistakes and keep your purchases limited to your budget, the next season.