While festive offers can tempt many to spend beyond their means, a prudent credit and payment selection process backed by financial discipline can help save money as well preserve your financial health.
Most of us look forward to the festive season to spend some quality time with our families and friends. Being considered auspicious, millions spend hefty amounts on renovating their homes, buying new vehicles, presenting gifts to our near and dear ones or adding new items to our wardrobe. To grab a larger share of the increased demand during the season, retailers as well as financial institutions come up with attractive festive offers and discounts. While these very same offers can tempt many to spend beyond their means, a prudent credit and payment selection process backed by financial discipline can help save money as well preserve your financial health.
Here are some financial tips on smart spending and ensuring healthy financials during the festive season.
Prepare a budget
Before going out on a shopping spree, make a list of the purchases that you wish to make this season and assign a spending limit for each one of them. Listing your spends in advance will give you more time to hunt attractive discounts and cash back offers on those spend items. The list will also stop you from getting carried away by attractive festive sale offers and buying items you do not need. Try sticking to the list prepared and get those items only if they fit your budget.
Don’t exceed 30–40% of your credit limit
Credit bureaus reduce credit scores of those exceeding 30% of their credit limit. A lower credit score would thereby reduce your future credit card and loan eligibility. If your total budgeted expense is already crossing the limit, either request your existing credit card issuer to increase your credit limit or try to route some of your budgeted expenses through debit cards.
Use debit card and credit card for purchases
Most consumers have two or more debit cards. Many of them would also have one or more credit cards too. As all banks offer special festive discounts and cashback offers on credit and debit card spends, compare the various offers available on your debit and credit cards before starting your festive buying. Spreading your transactions across various cards can help reduce the overall bill. Even without offers, consider using your debit and credit cards for making payments. This will help you earn higher number of reward points. If possible, try to redeem your accumulated reward points for paying off festive purchases as most cards come with expiry period for their reward points.
Compare various loan options
Last-minute addition to your spend list or unavoidable big ticket spends like renovating your home or buying a car may force you to avail a loan facility. To effectively deal with such a scenario, opt for the credit option that comes with the best deal in terms of interest rate, processing time, downpayment, loan tenure and EMI amount. For example, for an existing home loan borrower, a top-up loan would be the most cost-effective solution for financing big ticket spends like home renovation or car purchase as it comes with lower interest rate and longer tenure than personal loan and car loan. Similarly, a credit card user looking for a small ticket size loan for shorter tenures like 3-12 months can avail loan against credit card or opt for EMI conversion. Hence, visit online lending marketplaces to compare various credit options available on your credit score, monthly income and other criterion. Use online EMI calculators to find out your EMI affordability and interest cost of various credit options. For short term financing options, also consider the loan against credit card and EMI conversion facility available on your credit card(s).
Use your festive bonus to improve your financial fitness
Public sector as well as many private sector enterprises pay hefty bonuses to their employees during the festive season. While a large part of these goes towards festive spends and other indulgences, any surpluses left should be used to prepay or part-pay your outstanding debt or for making investments for your financial goals. For example, assume that you have an existing home loan with outstanding loan amount and tenure of Rs 20 lakh and 15 years @ 9% p.a. If you make a prepayment of Rs 50,000 from your festive bonus, your home loan interest cost will reduce by about Rs 1.08 lakh.
(The author is CEO & Co-founder, Paisabazaar.com)