Managing your money can be especially challenging at Christmas, when higher energy bills due to cold weather puts even more strain on efforts to save for groceries, Christmas parties, potential travel home and presents.
Some simply cannot afford life's luxuries, while others will borrow and worry later. Those who haven’t saved during the year for their Yuletide expenditure, or simply haven’t got the money to spare, have little choice but to borrow if they choose not to spend.
With less than 15 weeks to go to Christmas, John Lowe of MoneyDoctors.ie gives his top five tips when it comes to borrowing – but only if you have to.
1. Work out what you have to spend, only borrow that amount, and ensure you repay within 12 months
Bundle all your presents costs, the extras (tree, decorations, cards, etc.) plus food and drink, not forgetting entertainment. The total is the amount of money you are going to spend – ask yourself where are you getting this from?
If borrowing, how are you going to repay? It is important to know how much you need and where you are getting it from if you have not saved it. Christmas comes around every year so ensure that the loan is repaid within 12 months.
It is ideal, of course, to save at the same time so you are not put in the same position next Christmas, if at all possible.
2. Make sure you have the capacity to repay the loan you have taken out
Income is your number one asset and it has to cover this loan and all other financial commitments and expenditure in the household. There is absolutely no point in taking a loan out that you cannot afford to repay.
So, it’s back to that budget again and working out precisely what it costs to run your home on a monthly basis. Planning is the key.
3. Check the interest rates
Financial institution interest rates differ when it comes to borrowing, and there are a lot of considerations to take into account for each one.
Main street banks. They can charge up to 16% or more on overdrafts (an authorised loan on your current account that you must put back in credit for at least 30 days in a calendar year). Exceeding overdrafts attracts a "surcharge", which in some cases is an extra 12%. The cost of negotiating an overdraft alone is €25. Their personal loans (unsecured) can range from 12% to 20% and above – not the cheapest and they can attract some of the highest interest rates.
Credit unions and An Post Money. Probably the most flexible and cheapest option. Credit unions are individually independent, and you can only open one where you live or work. Normally, they require one month’s membership before applying for loans. Virtually all credit unions are part of the Central Credit Register so your credit standing is checked for every loan applied for by the 142 institutional members. A €2,000 loan over 12 months at 7.5% interest rate will cost you €177 per month.
Authorised money lenders. There are 35 money lenders authorised by the Central Bank of Ireland. They can charge interest rates of up to 200% and generally only provide short term (up to six months) loans of up to €500. They should be avoided if at all possible.
Unauthorised money lenders and pay day lenders. These should be avoided at all costs. One loan advertisement featured an APR of 1,294.1%, a staggering amount. Doing without or seeking the help of St Vincent de Paul Society or the Simon Community is preferable to taking out these kinds of loans.
4. Credit cards – be careful with them
Relying on a credit card can make for a bad habit so be sure to track each payment that you are making. "Maxing out" your card means that, come January, you will likely only be able afford to pay the minimum payment. Be mindful when using your cards over the holiday season.
There are four credit card providers that will allow you to transfer your card balance at 0%. An Post Money is the best of them, allowing you to transfer your balance to them at 0% for a whopping 12 months – but you have to have good credit, of course. Email me for details.
5. Think of the bigger picture
If you are one of those people who never plan, now is the time to stop and reassess. If you know the total of all expenditure for Christmas, then divide that by 12 and start saving in January. Best regular saver account – saving between €100 and €1,000 per month for up to 12 months – is 2% (1.34% after DIRT Tax) from both AIB Bank and Bank of Ireland.
Take care of yourselves.
For more information click on John Lowe's profile above or on his website.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
