One in four Australian borrowers will struggle to meet their mortgage repayments over Christmas, while one in 10 run the risk of damaging their credit score with Christmas spending.
And we owe nearly $50 billion in credit card debt.
It’s a problem that Australians feel most keenly in January and February as the festive season becomes a distant memory, but the financial hangover remains a very real and pressing issue.
A personal loan could be a solution
Peer to peer (P2P) lenders can offer cheaper credit for borrowers and better rates of return for lenders by cutting out the middle-man: the bank.
A loan you pay off, rather than a credit card balance that rolls over, can also help teach consumers about healthy money habits, the CEO of P2P lender RateSetter Daniel Foggo told Yahoo Finance.
Credit card-holders who always make their payments may not be in the market for a personal loan, but those who have an ongoing unpaid balance could find one useful, he argued.
“There are a lot of people who have significant balances outstanding on their credit cards, so moving to a regime where you’re getting a lower interest rate can save you a lot of money and it gets you into a good habit where you’re getting yourself out of debt and you’re not needing finance,” Foggo said.
If you take a personal loan out via a major bank you’ll be paying around 13 per cent. And even the banks’ low rate cards can come with interest rates of between 13 per cent and 20 per cent on the purchases customers make.
But, P2P lenders like RateSetter offer rates ranging between 4.0 per cent to 17.9 per cent, depending on the loan purpose, length, value and borrower’s credit health. Fellow personal loan provider, SocietyOne offers interest rates from 7.50 per cent.
Credit sector overhaul
The financial regulator, ASIC, has flagged plans to reform the credit sector in a move designed to protect spenders from falling into a debt trap.
The regulator said the changes would discourage card holders from switching regularly to retain a zero or low-interest rate on cards with high maximum balances.
However, these changes will make it more difficult to access higher credit limits and zero-interest balance transfers.
So it’s critical that spenders don’t throw the budget out the window over December.
The next step is to consider switching from expensive debt to cheaper debt.
“By being on the front foot and trying to make sure you’re organised before Christmas, you can obviously save a lot of money.”
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.