With the festive season upon us, most of us are probably gearing up to spend big money over the next weeks on things like home renovation, gifts for our family and friends, big ticket items like cars, TV etc. To tap into this demand, retailers and financial institutions come up with attractive offers to lure buyers. However, it's important not to get carried away by festive offers and stay financially disciplined. Here are some financial tips to ensure smart saving and spending during the festive season.
Prepare a budget
Before hitting the mall or going shopping online, prepare a list of various gifts or spends that you wish to make this season. Once you have that list in place, assign a spending limit for each of those items. The earlier you prepare the final list, the more time you will get to look for attractive discount and cash back offers on your spend items, both online and offline.
It's important not to get carried away by festive offers and stay financially disciplined.
Don't get carried away by seemingly attractive festive sale offers that tempt you buy items you do not need. These may force you to overshoot your budget. Strictly stick to your list and buy extras only if they fit your budget.
Use debit/credit cards for making purchases
As most credit and debit cards come out with special festive discounts and cashback offers, it is important to compare their offers before hitting the street or clicking the buy button. Go to the offer section of your debit and credit cards and find out the retail outlets where such offers are valid.
Even without offers, try to use debit and credit cards for purchases as much as possible as that will help you earn a higher number of reward points. If possible, try also to redeem your already accumulated reward points while making festive purchases.
Don't exceed 30–40% of your credit limit
Credit bureaus reduce your credit score if you regularly exceed 30–40% of your credit limit. This may have an adverse effect on your future loan and credit card eligibility. If your total budgeted expenses are already crossing such a level, either request your credit card issuer to increase your credit limit or try to route the exceeded part through debit cards.
Compare various loan options
An under-estimated budget, unavoidable big ticket spends like renovating your home, or even last-minute additions to your spend list may force you to take a loan. In such scenarios, opt for the credit option that offers you the best deal in terms of interest rate, loan tenure, EMI amount, down payment and processing time.
Opt for the credit option that offers you the best deal in terms of interest rate, loan tenure, EMI amount, down payment and processing time.
For example, if you are already a home loan borrower, then a top-up loan may be the most cost-effective solution for financing your home renovation or car purchase. For others, a personal loan would be a better option for carrying out home renovations. Similarly, for a credit card user confident of paying back dues within three–12 months, availing a loan against credit card or opting for EMI conversion might be more cost effective than taking a personal loan. However, being pre-approved loans, not all credit card users would qualify for loan against credit cards.
Use your festive bonus to improve your financial fitness
This is the season when public sector and even many private sector businesses pay hefty bonuses to their employees. While a good part of these would naturally go into shopping and other festive indulgences, one should always use a part of it to prepay or part-pay outstanding debts, taking an insurance cover, starting an STP (Systematic Transfer Plan) in mutual funds or even making long-term lump sum investments in case of steep market correction. For example, assume that you have an existing home loan @ 9% p.a. with outstanding loan amount and tenure of ₹20 lakh and 15 years. Making a prepayment of ₹60,000 out of your bonus would reduce your interest cost by about ₹1.10 lakh.
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