Failure To Budget? Aussies’ Christmas Debt Hangover

It’s late February, and almost a quarter of Aussie credit card holders say they’re still paying off Christmas debt.

According to a survey of 2,000 Australian credit card holders by ME Bank, around 23 per cent continue to suffer a Christmas debt hangover.

You can understand why, with the costs of summer holidays and back-to-school expenses also taking their toll over what can be the most expensive months of the year for some. It’s a time where paying back debt can be particularly difficult.

Not only that, but many may be taking on even more debt around this time – such as young people starting university. Besides the debt they’ve taken on via HECS, some students might find themselves needing to borrow more in order to purchase a car or furnish their rentals. Also, heaven forbid they take out a “student” credit card and fail to pay it off by the end of the month. At the time of writing, there are four credit cards targeted towards students and yet three out of four have interest rates around the 20 per cent mark!

The financial struggles of young people were apparent in the ME survey results. For Gen Ys (18-34) over the last six months:

  • Only 76 per cent (the least out of the age groups) said they had paid all their bills on time
  • 20 per cent (the most out of the age groups) said they had maxed out the limit on one or more credit cards.

Whether you’re new to debt or it’s something of a continuous battle for you, there are some simple tips you can follow to keep it under control and pay it off faster.

Debt – best sorted out quickly

Head of Deposits and Transactional Banking at ME, Nic Emery, says people struggling with credit card debt should address the issue as soon as possible.

“Set up a repayment plan or consider consolidating debts through a personal loan,” Mr Emery said.

“It’s also important to break any repeat behaviour. Make a plan to save or consider cutting unnecessary expenses during peak spending periods.

“Once you’re in a position to start saving, consider making automated deposits into a high-interest savings account or term deposit to keep you on track.”

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Why some Australians fail to save effectively

The ME Savings Intentions and Behaviours Report also included the results of a survey of 1,500 Australian households. This survey revealed most people are not conducting basic money-management methods such as setting a budget or even keeping track of monthly expenses.

Shockingly, in the past six months to December 2015, they survey found:

  • 56% of Aussie households do not consistently set a budget and 37% failed to stick to one.
  • 57% do not keep a record of monthly expenses.

Mr Emery says it’s an issue of poor discipline holding Australians back from realising their financial goals.

“The key to getting ahead financially is discipline: track the real costs of your household expenses, set a realistic budget, and commit to every single detail, consistently,” he said.

Bank account behaviours

Additionally, the ME report revealed some behavioural insights with regards to how Australian households use their bank accounts to save:

  • 49% transfer money to a savings account when they have spare funds.
  • 20% put all of their money into a savings account and then transfer it to an everyday account when they need.
  • 19% have direct debits set up to automatically to send money to a savings account.
  • 16% accumulate funds in an everyday account.
  • 15% keep savings in accounts they can’t withdraw from (e.g. term deposits).
  • 13% add funds to a home loan offset account.

Mr Emery recommends that people who “live for today, plan for tomorrow” try utilising automatic transfers such as direct debits into a savings account to help them “set, forget and save”.

What we’re saving for

According to the report, these were the top things Australian households were saving for:

Savings and investments

  • 28% – ‘Saving for a holiday, car or other large expense other than a home’
  • 24% – ‘Building up rainy day savings’
  • 10% – ‘Saving enough to buy a property to live in’
  • 9% – ‘Investing or trading in shares, bonds, commodities etc.’
  • 8% – ‘Buying an investment property’
  • 3% – ‘Investing in your own business’

Compared to last year, fewer households are saving to buy an investment property (2 points down to 8%) as at December 2015.

In spite of the apparent worries about Australia’s economic future, fewer Australian households are saving to build up their rainy day fund compared to last year (1 point down to 24%) as at December 2015.

 

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