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18 April, 2021 20:36 IST
Financial Planning
   
How to keep a tab on credit card spending as festive season approaches
Source: IRIS (03-NOV-14)

The festive season and year end is upon us, and what better way to celebrate than by shopping to our hearts content. However, it is easy to overspend and one should keep this under check to ensure that there will not be any regret on the lack of money at the beginning of next month, or even for the next few months. One of the easiest ways to overspend is through credit card usage. Since one does not need to pay immediately, it is easy to get carried away. Let us take a look at some options to reduce overspending on the credit card.

It is advisable to prepare a festive budget before the festive season is underway. Thus one can know how much they should save in-order to meet the festival expenses in the near future. During the festival season the shopping spends will be definitely higher, and if not planned in advance one may end up overspending. This can be taken care of, if one can compensate in other areas of the budget. For example, if one splurges on a new television for the holidays, maybe one can cut back on eating out to compensate.

With the growth in online shopping, one can shop sitting at home and also benefit from the wide array of offers various shopping sites have going on for the festive season. It is also easy to compare prices between sites, so one can get the best deal - this helps in keeping costs in check, with the double advantage of beating shopping crowds. Brick and mortar shops also have several sales which go on during the year end festivities, and one can use this to their advantage. Buying during these offers will give you additional savings and ensure that you do not overspend. However, it is vital to read the fine print on the offers carefully to avoid problems later on.

One of the best ways to keep spending in check is to speak to your credit card company and limit the credit limit on your card or get a new card with a lower limit. This credit limit should be equal to your shopping budget, and not significantly higher. If one has a lower credit limit, then spending will be curtailed to the budget and one cannot overspend on the credit card, saving unnecessary expenses and interest costs.

The other option is to shop with cash or a debit card, since a credit card will tempt you to spend more than you had planned to spend, but using cash or a debit card one can only spend the allocated amount, since there is very literally no more money to spend.

EMI options on credit cards are a very attractive way to buy (especially when one is celebrating the festive season) - or so they seem! It is wise to beware of these schemes, as you can end up paying substantially more for your purchase than you had planned. For example, if you buy something worth Rs 10,000 and take the EMI option, you will be paying around Rs 958 per month (assuming a 15% p.a. interest rate), and assuming a tenure of 12 months, you will end up paying Rs 1,500 extra for the product. Payment tenure is  another aspect which one has to consider while availing the EMI option. Some banks gives fixed tenure options of 6, 12 and 24 months. If you plan to pay back the credit card dues in 12 months of time and the EMI option is available only for 24 months then you will end up in paying unnecessary higher interest for your dues even-though the interest rate charged is lower.

Summary:

> Look at various deals - online & offline to get the maximum savings

> Reduce your credit card limit to avoid temptation

> Be wary of EMI schemes on the credit card

(Contributed by Anil Rego, CEO & founder, Right Horizons)


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