Managing money any time of the year is tricky, but Christmas adds that extra pinch of stress which can leave some people really feeling the January blues. Many adults in the UK use credit to cover the costs of Christmas – from buying the turkey and presents to festive drinks at the local pub. As long as you are borrowing within your means, there’s no harm in spreading the festive payments out this way. However, when it comes to payday in January, your salary might not seem enough to meet all of your credit commitments. We aim to offer you a few tips to help you manage your credit repayments in January, and possibly over the next few months to help you build financial resilience.
Before you can really tackle the results of a problem, you first have to identify the problem itself. Did you spend more than you should have done this Christmas? Or were there other contributing factors, like less overtime at work or unexpected boiler repairs, which ate into your Christmas funds? Unfortunately, while Christmas is a wonderful time of the year, life doesn’t just stop happening. Sometimes, an accumulation of small issues can cause a huge financial dilemma, and there’s no shame in this.
If you just spent too much this year, then you can learn an easy lesson and try to restrain yourself next time around. If there were other costs and payments that attributed to increased credit dependency, then there may be some daily habits you can develop to protect yourself against this in future. Firstly though, you need to focus on the immediate credit repayments.
There are 3 simple steps you can take to first tackle multiple credit repayments:
If you haven’t already, make use of the option to make a reduced payment this month, instead of trying to repaying everything in full. While we wouldn’t encourage this as a long-term solution, if it gives you a little time to develop a more sustainable repayment plan then it’s a good steppingstone to managing your finances. If you can afford to pay a little more than your minimum payments, but not quite the whole balance, compare the interest rates for each of your respective borrowing products and allocate payments to the highest interest rate first. This ensures you have made the minimum payments needed to stay within the terms of your contract, and you reduce the total amount of interest you eventually end up paying. This doesn’t mean you should ignore 0% or low interest rate credit facilities, but as an interim payment adjustment it can help alleviate some stress.
Once you’ve made all your minimum payments this month (and possibly paid a little extra), you need to create a strict and robust budget going forwards. Credit repayment is often successful when the plan is sustainable. You need to be honest with yourself and try to reduce unnecessary expenditure in order to increase the amount you can repay towards your debts. It might be a struggle at first, but it’s better to affordably pay your debts in 2-3 months than drag it out over 6 months or longer.
You can use online budget tools, or simply write a list of your earnings and essential payments (rent, utilities, food etc). Everything left over is known as disposable income and you should put as much of this as possible towards settling your debts.
Of course, there may be additional issues that come into play when trying to manage your creditors. Sometimes, the financial shortfalls we experience can be longer-term and not just a result of over-expenditure in one month. In this case, the best thing to do is create a budget, and then contact your creditors to explain your situation. With some credit products, it may be that you can just make minimum payments for a few months while you recover from an income shock or work towards creating a more sustainable financial plan. However, others may require balance freezes and payment plans. Creditors should only want to help you bring your finances under control and repay your borrowing, so don’t feel intimated or embarrassed when contacting them. Remember, keep them in the loop and they can really help you.
Once you’ve got your finances under control, it’s a good idea to think about building financial resilience which will help you tackle unexpected payments, and occasions like Christmas, with more ease in the future.
Once you’ve repaid your credit streams, consider putting the money allocated to settling your debts into a savings account instead. You’ll be used to living without those funds while you’re paying off debt, so it won’t seem like a huge change when that money goes towards a different cause. Having a good savings jar – even if it’s only a few hundred pounds – can be a godsend when things like flat tyres or broken washing machines happen.
Plus, if you get used to saving money, you can start to create a Christmas fund for next year, so you reduce the need for credit to cover the expenses over the festive period.
A major player in managing your money well and protecting yourself against future cashflow shortfall is reducing your dependency on credit and how often you use it. Then credit can be a last resort option and should only be used when it’s needed. Try to preserve your credit facilities for meeting priority bills in months where you have an income hiccup, or an unexpected payment arises which can’t be delayed until payday.
While it’s nice to have nice things, being frugal for a short while can reduce the need for super-strict budgeting in the future, while also giving you a sense of security in your financial wellbeing.
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