Want to enjoy a debt-free Christmas? Lynne Blundell reports on a sure Christmas savings strategy.
November 25, 2009
Christmas is a time for celebration. Unfortunately it is also a time for spending and, for many Australians, racking up a credit card debt. But with a bit of planning it doesn’t have to be that way.
In the lead up to Christmas last year Australian credit card debt had climbed to more than $45 billion, according to the Reserve Bank of Australia. This year it looks to be even higher.
One way of avoiding the Christmas debt trap is to set up a Christmas savings fund.
You don’t have to be earning a fortune to be able to save for a special event such as Christmas. By putting aside even a small amount each week it is possible to splurge on Christmas without relying on your credit card. It is simply a matter of planning ahead and budgeting.
Choosing the right account
By comparing savings accounts on RateCity you can find an account that meets your savings needs. Many accounts also pay a higher interest rate if you lock in your money for 12 months.
Take Mary-Anne, for example. Earning an average Australian wage of $47,000, Mary-Anne was keen to avoid a Christmas credit card debt, where she would be paying an interest rate of 19.9 percent with her existing card. She decided to set up a Christmas savings account and allow herself 12 months to save.
By comparing the interest rates on RateCity she chose an account that would ensure she reached her savings target of $1,500 by December 2010.
She found that the Ubank USaver account would allow her to make automatic deposits from her everyday debit account each month for 12 months. If she deposited about $122 each month Mary-Ann would earn about $37 in interest and reach her target in time for Christmas.
In contrast, with her current credit card it would take Mary-Anne 14 months to repay her debt if she paid about $122 each month and would be charged about $192 in interest. To pay off the debt in 12 months she would need to pay $140 a month, which she could not afford.
By setting up a special savings account, not only can you earn interest on your savings, you can also avoid paying hundreds of dollars in interest payments. And the best part is you can enjoy a debt-free Christmas.