A Survival Guide For Christmas

The Age

Monday December 9, 2002

Denise Cullen

The season of joy and goodwill to all has an aftermath of debt and despair for many. Denise Cullen looks at how to avoid the post-Christmas blues.

CHILDREN are drafting feverish correspondence to Santa, mailboxes are overflowing with homewares catalogues, supermarket shelves are groaning under the weight of prettily packaged mixed nuts and shoppers' tempers are growing frayed.

With only 15 shopping days until Christmas, the festive spending frenzy continues to blaze hotter than a string of fairy lights, with all the potential for combustion that entails.

'Tis supposed to be the season to be jolly, but Christmas also imposes enormous emotional and financial pressures upon people, all of which can lead to problems that persist well into the New Year.

Australians will spend almost $6 billion in retail stores this season, up about 4 per cent on last year, according to the Australian Retailers Association (ARA).

A good proportion of this will be placed on credit cards."

It's disturbing that at a time when employment and family life are less stable and more people have to deal with change, our credit spending is higher than ever, placing us at increased financial risk," says Consumer Credit Legal Service manager Carolyn Bond."

While many people think of reducing the risk of financial disaster by buying insurance, like income protection and so on, reducing the level of debt, and especially credit-card debt, can place you in a more secure financial position."

The good news is that it's possible to maximise your Christmas pleasure while minimising the fiscal pain.

This Money Manager guide aims to help you get through the festive season with your finances - and your sanity - intact.

Christmas credit

CHRISTMAS and credit cards go together like plum pudding and warm custard.

This year, Australians are tipped to spend up bigger than ever on presents, food, entertainment and other expenses. But financial counsellors say they don't expect to see the marked increase in card problems that traditionally greets them in February or March.

This is not as positive as it sounds. Rather, it's a sign that our collective indebtedness has reached unprecedented levels."

Now that credit use is more widespread, the problems probably arise all through the year," explains Ms Bond. "(That said) statistics show that spending clearly increases at Christmas time and, given the level of credit-card debt, (this) is the time that people add most to their credit-card debts."

For retailers this is the most important time for generating sales and profits. Compared to an average month, department stores almost double trade in December, while sales of recreational goods, specialty food, clothing and domestic appliances also surge significantly, according to figures provided by the ARA.

Splash-out spending on animated singing polar bears and BMX bikes, board shorts and Barbie dolls, and, of course, tins of assorted butter biscuits is unfailingly fuelled by the urgent have-it-now marketing tactics of the retail sector.

Store cards promoted in-house can be convenient, but if you're not disciplined they can also be one of the biggest wallet-drainers of all time."

Christmas is a time when interest-free products, where you often don't pay for six months or a year or more, are promoted," says Ms Bond."

Interest-free credit is usually a credit card, often with interest of up to 27 per cent, which simply has an interest-free period. Some consumers don't realise that they're applying for a credit card until it arrives in the mail."

Ms Bond says cards like this allow stores to sell more goods, while lenders can "trap" some consumers who otherwise would not have applied for a high-interest credit card."

While 'no payments until June' sounds attractive, you can lose track of the debt you're incurring and if (the deal) includes an interest-free period, making no regular payments will increase the chance that you owe a large lump sum when the high interest rate kicks in," she says.

This seasonal spending frenzy is also aided and abetted by the banks, who encourage customers to apply for new credit cards or extend the limits on existing ones.

For people stretched to their financial limits, it will be difficult to resist the lure of yet another card that might just buy a bit more time in the short term.

An Infochoice poll found that more than 36 per cent of respondents had more than three credit cards in their wallet, while 4 per cent of people had a staggering seven or more.

The range of jolly tempting tinsel-wrapped offers includes a Commonwealth Bank rewards-linked credit card that has an interest rate of 8.5 per cent for the first six months and no annual fee for the first year.

But honeymoons end, and many plastic products have just become more expensive. For example, the ANZ last month joined other banks in announcing a jump in annual fees on its reward-based credit cards, including the Qantas ANZ Visa Card, which will increase by almost 50 per cent to $40.

Half-a-dozen hints for card junkies

1. Put the kybosh on credit-card cash advances, as they will cost you dearly in interest charges and other fees. For example, Westpac recently introduced a 1.5 per cent charge for each cash advance instead of the previous flat $1.50 fee. That puts the price of a $400 cash advance at $6, four times what it cost before.

2. If surviving without an injection of credit would be something of a Christmas miracle for you, at least steer away from expensive loyalty-linked cards and choose a product with low interest rates and annual fees, such as BankWest's Lite MasterCard, which has an interest rate of 9.99 per cent.

3. Think long and hard about dipping into your home mortgage redraw facility to blast your card bills into the big beyond, warns Ms Bond. "It can be tempting to redraw from your mortgage to pay off credit cards, but don't do this in a hurry," she says. "You're using your home equity to pay for food, clothes and presents."

Decide now that your credit-card balance won't increase over Christmas - or at least set a limit to work with. Work out a plan to pay off your credit cards and think about it as an investment - it's probably the best tax-free investment you can make."

4. Remain alert to the potential of credit-card fraud this Christmas. Thieves know that fraudulent transactions are more likely to go unnoticed amid the "noise" generated by a busy month or two of credit-card activity. Check your statement regularly and report any discrepancies to your card issuer immediately.

5. If your credit-card balances are already out of control, it might be time to consolidate your loans. But InfoChoice chief executive officer Lisa Montgomery says this strategy works only if you continue to make repayments at the same level as you were before rolling them all into one. For example, assume a young couple has an $8000 credit-card debt costing them 18 per cent per annum and they're managing to pay $240 on this each month. They also owe $150,000 on a 6.5 per cent per annum housing loan, requiring payments of $1012 per month, which brings their total commitment (including the credit card) to $1252 per month. By loading the credit-card debt on to their housing loan to take advantage of the lower interest rate, their required monthly repayments drop to $1066. "But for the consolidation to be effective it is important for the borrowers to continue to pay $1252 per month, rather than $1066 per month, which is the standard payment for the new balance," explains Ms Montgomery. "If they reduce the payment, it will end up costing them an additional $5000 in interest on the card by taking it over 25 years."

6. If you've experienced debt difficulties before, cut up your cards, choose a product that's more compatible with your spending patterns, or insist on a lower limit, Ms Montgomery advises. "It's important for consumers not to succumb to the letters sent by banks to increase their limits, as this is a real danger."

Save money on holidays

WHETER you're planning an extensive European odyssey or a down-the-road trip to see the rellies, there are ways to make your holiday cash work harder:

1. Chasing the cheapest travel insurance policy is a false economy. The Australian Securities and Investments Commission advises travellers to carefully check what's included and what's excluded, as not all policies are alike. Reading the fine print has become particularly important since the collapse of Ansett and the rise of terrorism, which have both led to major changes to travel insurance cover on offer.

2. Keep an eye out for cheap deals on destinations, such as Bali, that have fallen out of favour. "The travel industry is no different from any other: When demand drops off, prices tend to drop as well," says Flight Centre Australia general manager Sue Rennic. "For this reason, we can expect to see some cheap Bali packages in the next couple of months as the local tourism industry begins its fightback."

3. The standard advice, to be flexible about your travel dates and timing in order to save money, doesn't hold at this time of year. "Generally speaking, it is always best to plan in advance for Christmas because everyone is on holiday and all of the good spots book out fast, be that domestically or internationally," explains a spokeswoman for travel publisher Lonely Planet, Briony Grogan.

4. You might be rewarded if you can apply some flexibility to your itinerary once you're on the ground. For example, in London you can buy half-price tickets for pricey West End productions - but only on the day of the performance.

5. Try to avoid hiring a car at the airport. "Often, it's best to book a car as part of the overall package," says Ms Rennic. "Car hire is commonly included in deals or can be added to many airfare and accommodation deals as an affordable extra."

6. Better still, use public transport. "It's cheaper in 99 per cent of cases, regardless of country," says Ms Grogan. "It can also be a relaxing way to see some sights and meet some locals."

7. Don't assume that booking online automatically saves you money. "Some of the larger companies, like Expedia.com and Travelocity.com, aren't always the cheapest," explains Ms Grogan. However, if you genuinely have to leave your plans to the last minute and are open to all possibilities, it might be worth checking out www.lastminute.com.au and www.wotif.com

Ways to earn extra income

HAS your budget already been shaved to within an inch of its life? Maybe it's time to start looking for opportunities to generate extra Christmas cash, without jeopardising the job you have. Here are a handful of places to start your job search - but you'll need to be quick.

Retail: Department stores need a pool of Christmas casuals to cope with extra demand and extended trading hours. Wages vary according to your age and job status, but the Shop Distributive Association's state secretary, Michael Donovan, says an adult casual worker should receive an hourly rate of $15 to $18, while an 18-year-old casual can expect to receive $11 to $12.

Cleaning: Domestic agencies are run off their feet at this time of year as stressed clients try to get their house in order for the arrival of in-laws and house guests. But why let someone else take a cut of your hard work? Ring around to establish the going rate in your area and set yourself up as a freelance operator.

Hospitality: Most of the major catering agencies already have a pool of casuals in place, but it can be worth approaching restaurants, function venues, pubs and clubs in your area to see if they could use your services over summer. Some will require you to have completed a Responsible Service of Alcohol Certificate, but any other training for people who've never served behind a bar, or waited tables before, tends to be of the "sink or swim" variety. Liquor, Hospitality and Miscellaneous Workers Union state secretary Brian Daley says award rates hover around the $16 to $17 an hour mark, but concedes most restaurants would be more likely to pay around $10 to $12 an hour.

Finance: Why not turn the tables on the banks and make some money out of them? Assistant branch secretary for the Finance Sector Union (Victoria and Tasmania) Cath Noye says demand for tellers and call-centre operators increases towards Christmas as the volume of transactions increases. But she adds that the people most likely to pick up work are former bank employees, rather than those with no experience in the industry.

Stretching your gift dollar

You don't have to spend a fortune to provide for friends and family at Christmas. A few simple changes can make a big difference to your budget:

1. Put your credit card on ice and try to pay by cash or debit card (Eftpos) as much as possible. A bank-issued credit card carrying a debt of $3000 can take about 12 years to pay off if you make only the minimum monthly payment, says Ms Bond.

2. If you're already a member of a credit-card or other loyalty scheme, now is a good time to cash in your points for, say, shopping vouchers or gift hampers. (Don't, however, fall into the trap of spending up big to earn more points.)

3. Retailers thrive on creating the illusion that if you don't buy the "perfect gift" on the spot, this very minute, right now, before stock runs out, there will never be another opportunity and "you'll miss out". But there will always be another robot dog, or super-surge iron, or fingernail fashion kit, so save your angst, and your wallet, until you're ready to shop sensibly.

4. Use Christmas catalogues to plan your purchases and comparison shop, so when you finally hit the stores you'll know what you're buying for whom and how much it's likely to cost.

5. Shop the old-fashioned way. Lay-bys help you avoid high interest charges and 11th-hour headaches by choosing gifts in advance and paying for them in instalments.

6. Shop the new-fashioned way. If maddening crowds make you prone to overspending or poor decision-making, log on to online retailers such as www.wishlist.com.au for a stress-free solution. Remember to build shipping costs into your budget and, if you've used an overseas site like www.amazon.com, you'll also be up for foreign-exchange charges.

7. Making your own gifts is only a good idea if it uses pre-existing skills (cooking, sewing, gardening, painting) and doesn't involve buying lots of expensive equipment.

8. For the person who has everything, why not get them a goat, or a series of vaccinations, or a deep bore-well and pump? TEAR Australia - www.tear.org.au - has a gift catalogue full of these and other ideas to assist development or relief work in very poor countries. They send you a gift card (with a blank space for you to fill in the gift recipient's name) for every item you buy.

© 2002 The Age

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