Festive season is considered as an auspicious time for home renovation and making big ticket purchases like buying car, home electronic appliances, etc.
To tap the increased demand, financial institutions and retailers come up with enticing offers and discounts on their products. However, a little bit of carelessness or compromise in your financial discipline may have severe impact on your overall financial health.
Keeping in mind following do's and don’ts can help make most of this festive season without compromising your financial fitness.
Do's Budget your expenses
Prepare a list of various spends that you plan to make this festive season and fix spending limit for each of them. A list prepared in advance will give you more time to look out for catchy discounts and cash back offers available on both online and offline platforms. However, do not allow yourself to be carried away by alluring festive sale offers and purchase goods that you don’t require. It may lead you to exceed set budget and may even harm your financial health.
Use debit/credit cards for transactions
Most banks offer special discounts and cash-back offers on debit and credit cards. Hence, visit the offer section of your debit and credit cards and find retail outlets or online platforms where such offers and discounts are valid.
Even if you fail to avail an offer, try to use your credit or debit cards for festive spends to the extent possible for earning higher rewards. If possible, try to redeem accumulated rewards for your festive buys as most banks have set expiry period for reward points.
Compare various finance options
An unavoidable big-ticket spend or last-minute addition to your festive list may force you to avail loan facility. In such cases, opt for the credit option offering the best in terms of loan tenure, interest rate, EMI amount, down payment and processing fee and time. For instance, if you are a home loan borrower, a top-up home loan may be the best option in terms of interest rate and tenure for financing your big ticket spends. For others, availing a personal loan is usually the best option. For credit card users confident of paying outstanding dues within 3-12 months, a loan against credit card or a credit card EMI would be more convenient for financing small ticket purchases.
Before zeroing on any particular lender, visit online financial marketplaces to find out the best deal available, depending on your credit score, monthly income and other criterion. Use online EMI calculators to find out the interest cost and monthly EMI options. Remember to factor in processing fee as many lenders try to make up for the reduced interest rates during festive season by charging higher processing fee.
Put festive bonus to good use to improve financial fitness
Public sector employees as well as many in private sector usually receive hefty bonuses during the festive season. As a sizeable portion would be used for festive shopping, the left-over portion can be used to strengthen your financial health. For example, existing home loan borrower can use his surplus bonuses to part-pay or prepay his outstanding debts and reduce interest cost. Others can invest the surplus bonus in mutual funds to meet their financial goals.
Don’ts: Exceed 30 percent of your CUR
Your credit utilisation ratio (CUR) is the proportion of total credit limit availed by you. Those having CUR above 30 percent are considered as credit hungry by lenders and hence, credit bureaus too reduce the credit score on breaching this limit. If you are closer to breaching 30 percent CUR in this festive season, request your existing card issuers to increase your credit limit or route some of the transactions through your debit cards.
Spending beyond repayment capacity
Remember to keep track of your spends during this festive season as unhindered consumption may land you in a debt trap. Keep in mind your repayment capacity while swiping your credit card or availing loans for festive season. Remember that failure to repay your credit card outstanding by the due date will cost hefty finance charges of up to 47 percent p.a. Failure to repay the minimum amount due would additionally cost you late payment fee while reducing your credit score at the same time.
Naveen Kukreja is the CEO and Co-founder of Paisabazaar.com.