The Investor: Take Action not to Avoid Bill Blues Next January

There are three types of credit card users: the Wise Guys who always pay their bills in full, the Fools who never do, and the January Failures, who usually pay in full but can’t manage to cover the post-Christmas bill.

If you are either a Fool or a January Failure, your Christmas splurge ends up costing you even more, because of the high rates of interest on your card.

And for those who resort to borrowing from loan sharks to cover the costs of gifts, food and drink it’s even worse. “Traditionally loan sharks do extremely well in December/January,” says Henry Lynch, chief executive of the NZ Association of Credit Unions.

“The reality with some loan sharks is that you can end up paying well over 400 per cent in annualized interest – and it often ends up as a vicious circle of borrowing to repay what you’ve already borrowed.”

Now – as opposed to late this year – is the time to take action to avoid the January bill blues again next year. If you start a Christmas savings plan early in the year, you can more or less painlessly accumulate your own end-of-year bonus.

There are a couple of good ways to do this. One is by setting up a regular transfer – perhaps the day after your payday – to a savings account with a bank or credit union.

Many credit unions offer Christmas accounts, and this past Christmas the average credit union member had a balance of about $800, up considerably from the year before, says Lynch. “And when you break it down, $800 is only around $18 per week over the course of the year.”

Consumer NZ, which reported last March on ways of saving for Christmas, says bank savings accounts can also work well.

It’s good if the account rewards you for not withdrawing money through the year. Some do this by charging a fee if you make more than one withdrawal a month, and some pay bonus interest each month if your balance has increased or you have made no withdrawals.

Look for an account that pays reasonable interest. To my surprise, though, Consumer NZ found that you will probably get a better effective return if you save through a supermarket Christmas club.

The money saved can be spent only in the supermarket, but it would be useful for the big spend-up on Christmas food and drinks.

In some supermarket chains you make deposits or buy Christmas vouchers at the checkout, in others you use automatic payments, and some plans accept both. The rewards vary.

At New World and Pak’nSave, for every $5 saved in December through February, you can spend $5.32 after the following December 1 – an attractive tax-free return of 6.4 per cent, and that’s over less than a year.

If you save later in the year, the bonus is smaller. By September through November, for every $5 saved you can spend $5.17. Still, that’s 3.4 per cent over three months or less – a great return.

At Countdown, Woolworths and Foodtown, it’s simpler. You buy vouchers through the year, and when you redeem them in December or January you receive a 5 per cent bonus.

While the idea is to buy vouchers gradually through the year, a spokesman confirmed that you can buy them in late November and spend them soon after – receiving an instant 5 per cent return.

Other chains have similar schemes. Look for info on their websites or in stores.