Be a credit to yourself when planning budgets

The annual year-end holiday season is over, and Chinese New Year is just around the corner.

Already, many people are starting to face up to the extra debt that runs up so easily during festive periods, like a hangover after too many glasses of champagne.

But experts advise that proper planning and management can make this annual headache a lot less painful.

Banks and credit bureaus say statistics confirm that spending generally rises significantly in the months leading to Christmas as well as Chinese New Year.

Data from the Credit Bureau Singapore (CBS) shows that from 2011 to last October, average credit card balances peaked in year-end festive seasons, usually from October to January (see chart on Page 26).

The average credit card outstanding balance includes the amount charged to the consumer's card or cards, rolled over balances and interest charges.

The CBS chart also shows that average credit card balances have risen during this period in the last two years, perhaps as consumers spend more on year-end holidays and gifts.

A survey by United Overseas Bank last month showed that Singaporeans were planning to spend an average of $893 on Christmas gifts in the season just gone.

This was 54 per cent more than in 2012, said the survey. It suggested this may reflect the brighter economic outlook.

Ms Sandhya Devanathan, head of unsecured lending, Singapore and South-east Asia, Standard Chartered Bank (Singapore), says the bank is seeing a rise in spending, especially during this holiday season.

"There had been a double-digit growth in spends year-on-year," she adds, as of last month.

Hey, big spenders

DP Credit Bureau (DPCB) is finding that families and women face the most pressure to spend, while singles face the most temptation.

DPCB general manager Lincoln Teo says: "The dual-income, middle-income families do find themselves saddled with greater pressure to spend over the year-end period into Chinese New Year.

"Some opt to place the large-ticket items on credit cards, rolling over till the mid-year when they anticipate clearing their debts.

"Most income earners would also use their year-end bonus to finance year-end expenditures such as holidays and end-of-the-year insurance premiums."

Mr Teo cites as an example a married couple, John and Nancy (not their real names), with one child who turns seven this year.

The three festive seasons of Christmas, New Year and Chinese New Year place additional challenges on the family finances, says John.

The couple usually start saving $500 to $600 a month, three months before Christmas, from their combined income just to manage the extra expenses. These include Christmas presents for family and friends, Christmas and New Year party expenses, new clothes as well as the Chinese New Year reunion dinner and hongbaos.

They also have to put aside an extra $250 for books, uniforms and shoes for their child, who starts primary school this year, and this is expected to become an annual expense during her school years.

Nancy tells DPCB of higher expectations - and costs - when it comes to gifts. Electronic devices such as cellphones, computers and TVs are typically expected.

With these big-ticket items, the couple use their credit cards and sometimes roll over the payments, planning to clear the debt by the middle of the year.

And once the presents have been unwrapped and the champagne popped during the year-end festivities, it is time for reunion dinners.

Mr Teo says: "Reunion dinners which are celebrated at restaurants do place additional pressures on the family finances over the Chinese New Year as typical set menus for one table can go up to $888 to thousands of dollars, depending on the choice of dishes."

John says they typically prepare $8 to $28 per hongbao for friends and their children over the Chinese New Year period.

"Today, couples have additional pressure to package higher amounts in hongbaos as expectations from children increase," adds Mr Teo.

Women, he says, feel the pressure too as they are the ones who usually purchase for the family and parties, while singles, especially those who have just started working, are tempted to spend at parties over Christmas and New Year's on their credit cards.

"A credit card left at the club to run up a tab through the evening can be especially dangerous," adds Mr Teo.

This is made worse when you have more than one credit card.

Ms Devanathan says: "Singaporeans on average have around five to six credit cards each. Hence it is easy to overspend, especially during festive seasons."

Managing the festive debt

Ways to pay off the debt include using your bonus, making monthly instalments at a lower interest rate through balance transfer, and working harder by taking on a part-time job or overtime at work, says Ms Tan Huey Min, general manager at Credit Counselling Singapore (CSS).

Ms Wong Chung Yee, head of cards and personal loans at OCBC Bank, advises paying all your bills on time. If you cannot, then at least pay the minimum amount promptly, she says.

She notes: "If you have problems making even the payment for the minimum amount, inform your bank early so that you can work out a manageable repayment scheme. This signifies your commitment to repay."

DPCB's recommendations for festive expenditure are:

Always work out a budget before you start spending. This allows for better planning for both saving up to the expense period, and managing expenses as a whole.

Have a buffer budget. Factor in a cushion amount in case of emergencies and unexpected purchases.

Plan to pay back. If the decision is to use credit to tide you over the festive expenditure, work out how this debt can be paid off as soon as possible.

Prevention is better than cure

CCS' Ms Tan says that generally, it is good to do a periodic check on your credit score. "Be it the year-end, mid-year or beginning of the year, check to make sure that everything is in good order."

The credit score assesses an individual's level of credit risk, and you can request and view it on your credit reports with CBS or DPCB.

CBS executive director William Lim explains: "An individual's credit score is affected by several factors, including the amount of credit used or owed per account and the severity and recency of delinquencies.

"The year-end festive spending may result in an adverse impact on an individual's credit score if there is difficulty in repayment."

Ms Tan's advice is to look at drawing up a monthly budget for all expenses that could be incurred in an entire year.

Make provisions for most expenses including medical, which is considered an ad-hoc item as illness is unexpected, says Ms Tan.

Expenses include gifts for ad-hoc events such as weddings and expected expenses such as Christmas gifts or hongbaos for Chinese New Year, if it is part of your lifestyle.

Also consider new clothes as an expected expense, "as there is wear and tear that requires replacement, and growing children will need bigger-size clothing" over time.

Ms Tan says: "If the person adheres to his budget, that means spending on the daily living expenses according to the budget, and has set aside the money provided for ad-hoc or less frequent expenses in a separate bank account, he should have the money to take care of most of his expenses, including Chinese New Year celebrations and others."