January has arrived and for many, this time of year can provide an opportunity to review one’s finances. For some this will be part of regular life admin, while for others, it’s essential in order to pay off debt.
According to new research by personal finance platform Nerd Wallet, shared exclusively with Express.co.uk, almost half of Britons did not have a budget in place for their Christmas shopping last year, with many likely to rely more heavily on debt.
An independent survey of 1,754 UK adults who celebrate Christmas, which was carried out in November 2020, found on average people expected to spend £285 on Christmas presents, down five percent on 2019 (£299).
Just under a third (32 percent) of people would buy Christmas presents on a credit card in 2020, while 12 percent said they planned to take out a loan.
Furthermore, one in five (19 percent) anticipate taking on more debt than usual over the upcoming Christmas period.
Among respondents aged between 18 and 34, this figure increased to 34 percent.
John Ellmore, UK director of NerdWallet, said: “The financial hardship brought about by the pandemic could see more people take on debt this Christmas.
“Our research shows Britons are determined to maintain the amount they spend on presents, regardless of COVID-19 and its effect on their incomes.
“However, this might result in a greater reliance on credit cards and loans.
“Taking on debt to cover the cost of Christmas is not unique to 2020 – it’s an annual occurrence and a reasonable way of managing this costly time of year. But it is of some concern to note that so many people (45 percent) have no clear financial budget in place for the festive season.
“Spending beyond one’s means or taking on bad debt that cannot easily be repaid are dangerous financial ploys at any time of year.
“They can then ensure they do not over-stretch themselves – no one wants to start 2021 with a financial hangover.”
Following the festivities and amid the arrival of the new year, Mr Ellmore told Express.co.uk about the importance of managing credit scores.
“During a times of economic volatility, the credit market can tighten, making it much harder for consumers with lower credit scores to apply to a mortgage, credit card or overdraft,” he said.
“So, it is important that consumers make the extra effort to maintain a decent score.
“This can be achieved by taking simple steps, such as paying bills on time; setting up a direct debit is a handy way of avoiding late payments.
“This way, consumers are giving themselves the best possible chance if they find themselves needing to apply for a mortgage or loan.”
For those who are in debt, Mr Ellmore had some debt management tips to share.
He told Express.co.uk: “During the expensive festive period, managing household debt and large expenditures such as mortgages, loans or credit card bills seem overwhelming.
“So, to get one’s finances on track for 2021, it help to make a note of all the debt that is owed, and calculate the percentage of monthly income that goes towards debt repayments. Doing so will make it much easier to feed into a monthly or weekly budget.
“Importantly, feeding debt repayments into a budget will ensure consumers be able to anticipate any difficulty with making repayments.
“If this is the case, it would be wise to inquire about the possibility of a payment holiday or switching temporarily to interest-only repayments.
“These options could offer some financial breathing space whilst households regain control of their situation.
“That said, they could mean that consumers could pay more in the long-term; consumers must confirm such details with their broker before committing to any repayment adjustments.
“Above all, consumers must seek help, if they feel the burden of debt is too much. Charities such as StepChange or Citizens Advice can offer invaluable support for people struggling to manage their finances.
“Even just opening up to someone about financial problems is a positive step towards regaining control of the situation.”