Be ready for festivals with these credit management strategies

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Festivals are an occasion when people tend to spend more than they can afford. But due to the ongoing Covid-19 pandemic, this holiday season will be unlike any other in the recent past. Many people have lost their jobs or face income reductions, making even the most basic tasks a ‘battle.’ Even if you don’t have any of these problems, you should avoid using credit cards excessively during the holiday shopping season.

While it may allow you to enjoy festivals in grand style, you won’t feel good about yourself if you have to pay increasing amounts of interest in the future. Also, considering the favourable timing, it’s astonishing to see so many people opting to spend rather than save or invest.

That said, credits come with a hidden interest expense that, if not appropriately managed, can quickly balloon out of control. So, in the holiday season, keep a close eye on your credit card expenditures and try to reduce your debt load. Here’s a look at how to be in control of your credit card spends and repayment of the dues. The credit behaviour you should adopt when using a credit card to make purchases and when paying off loans is described below. Let’s take a look:

Affordability vs desire

During the holiday season, people tend to overspend without considering their financial situation. Without cash, they’ll go on a credit card shopping spree and buy whatever they want for whatever price it’s offered. A late payment fee will not apply if you pay your credit card bill partially rather than in full. You can pay as little as 5% of the outstanding credit card balance per month to avoid a fee.

However, doing so may put your finances in peril because you would be required to pay interest at a staggering rate of 30 to 45 % every year. Month after month of spending on a card and paying the bills in this manner, even 5% could become too large for you to pay over the long term!

Given the circumstances, it’s not a bad idea to only buy what you need, rather than what you desire. This will assist you in avoiding paying interest by ensuring that your entire payment is received on time.

Shop based on your budget and earnings

When your credit card spending is in balance with your earnings and savings, everything is OK. Keeping the same routine during the holiday hustle becomes difficult for many. Those who do, on the other hand, remain ‘happy’ throughout the holiday season and afterward. Spend no more than 5-10% of your net monthly income on credit card purchases. This will make it possible to celebrate while saving money.

Loan balance transfer

If you haven’t been affected by Covid-related problems, this is a good time to make a profit by transferring your loan to a new account. By transferring your loan balance from one lender to another at a reduced interest rate, a balance transfer lowers your interest commitments.

You may save money by transferring your debt to a new card, but the savings will be minimal. As a result, throughout the holiday season, you should exercise caution when considering balance transfer offers.

Choosing MFs and term deposits

This holiday season, the key will be to select mutual funds based on their historical performance. Analyse the fund’s performance and see how it stacks up against the industry averages. Check to see how the fund compares to others in its class.

Investing in a mutual fund requires picking one that has outperformed its benchmark and has a high ranking within its industry. These can be found on websites dedicated to mutual fund analysis. The bank with the higher interest rates on fixed deposits should be chosen when it comes to these.

An SIP or a lump-sum investment in mutual funds are both options for investing in these funds. A systematic investment plan (SIP) invests a defined amount over time in mutual funds, whereas a lump-sum investment is made all at once. SIPs are popular among investors because they are both economical (investments start at as little as Rs 500 per month), and they help you develop a disciplined approach to investing.