A financial hangover happens when you feel broke after a spending spree. The festival of Diwali usually leaves people with such feelings, as massive discounts and attractive offers all around us tempt us to spend extravagantly. Diwali calls for a planned approach to festivities to meet your expenses and avoid dependence on credit. However, with temptations all around us, we may still borrow big to finance our purchases. As a result, the festival season makes us prone to overspending, and then comes the feeling of regret for having gone overboard with the carefree spending.
A festival hangover is difficult to deal with and can have a lasting impact on your financial health. So it is important to get out of it at the earliest and by taking these corrective measures.
Take A Stock Of All Your Festive Debts
Attractive offers and shopping benefits during festive season tempt you to go beyond your budget and spend more than your financial capacity by using borrowing instruments like credit card EMIs, personal loans, etc. After the festivities get over, sum up all the festive debts like outstanding on credit card, loans taken, credit card EMIs, etc. It will help you in ascertaining the best plan for repayment. This takes us to our next question on how to chalk out the repayment plan.
Debt Repayment Plan – Focus On Reducing Interest Burden
If you have used a credit card for most of your purchases, you should try paying all your dues on time to avoid paying high interest charges on the outstanding. You can also connect with your credit card company to convert your spends into EMIs, provided it is levying a low interest rate. Exploring secured loans like loan against securities to repay all the small loans and credit card dues would not be a bad idea. However, do give a thought to pre-closure charges (if any) before closing a loan. You can repay the festive loans by adjusting your regular budget, provided you put in a genuine effort to compromise on certain lifestyle expense.
Consolidate Your Loans
It’s not a wise decision to get a new loan to repay the existing one because it may push you into a debt trap. You may consolidate all your loans by repaying multiple small loans with a single fresh loan having longer repayment tenure.
Estimate Your Fresh Spending Capacity
Your spending capacity may come down temporarily after the festive season spending spree. It would make sense to assess your current spending capacity and reduce your reliance on credit instruments. Having debt beyond your repayment capacity can hurt your financial health, especially your credit score. It is advisable to focus on clearing outstanding dues instead of continuing to shop on borrowed funds. Checking your credit report at this juncture would be a wise idea to understand the effect of debt on your credit score. If it less than 750 due to delayed repayments, try to put it back on a healthy score track by continuing to make timely repayments and reducing your credit utilisation.
Apply To Increase Your Credit Card Limit
If you have exhausted the spending limit on your credit card, you can use this as an opportunity to get your credit limit enhanced. If your card company accepts the request, it will help you bring down the credit card utilization ratio with a positive impact on your credit score.
Credit card companies often offer higher reward points on certain spends during the festive period and also offer cash backs on shopping with certain merchants or on certain kinds of transactions. Check your credit card offers and match it with your card bill. If you have not received a reward benefit or if the cashback has not been credited to your card account, flag it immediately to your credit card company.
With financial discipline and some smart changes, you can easily overcome the financial hangover. However, not paying attention to it may affect your credit score and disturb your financial goals.
The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.