Personal Finance

Barry McCall provides practical advice for the post-Christmas financial slump.

Managing the debt hangover

Post-christmas blues are something nearly all of us are familiar with. We're overfed and we've overspent despite our best intentions now that the euphoria of the occasion has passed we are left to contend with the after effects.

A few aspirin and a little bit of disciplined exercise will probably look after the physical excesses of the festive period but the financial excesses may prove a little bit more intractable. While the new 42 inch LCD TV and Blue-Ray DVD player may have seemed like great ideas in Christmas week, paying for them in January can be another question entirely. Particularly when you've overspent on just about everything else.

Advice not to overspend and run up debts in the first place is pretty facile never mind patronising in these circumstances. The debts are there and it's a question of managing them.

The first step in good debt management is to split the debt into its short and longer term components. Short term debt includes credit cards and store cards and borrowings for relatively small items that really should have been paid for from ready cash.

Longer term debts would include the aforementioned TV, furniture, major household white goods such as washing machines and fridges, cars and so on. In short, anything that is going to last longer than a few years.

For example, if you are buying a new car and don't intend changing it for five years or so there is nothing at all wrong in borrowing to pay for it over four or five years. Once the borrowing term doesn't exceed the useful life of the asset, the interest rate isn't excessive and you can afford the repayments this is perfectly fine.

However, if the item purchased is an annual family holiday or a very expensive but not very hard wearing handbag longer term borrowings are clearly out of the question. These should be paid for out of savings or if that is not possible over two or three months with a credit card or slightly longer with a credit union loan.

Once you have sorted out the long and short term debt you have to look at what your repayments are for - if some of the long term debt should be moved to the short term category and vice versa and what you can afford to pay back while still having enough disposable income for the coming year.

This latter point is absolutely vital. For many people the debt spiral begins with overspending one Christmas and borrowing on top of that the pay for the next one and so on and on.Once you have that done then it's time to make a plan. Look at what you owe on your credit cards for the short term debt. If this can't be paid off within a few months it's time to head to St Patrick's Credit Union to talk about a loan of perhaps a year to pay off this. This will be a hell of a lot cheaper than paying credit card interest and will help you get on track. Ideally, you should include other short term debts built up before Christmas in this amount so that the 12 month repayment plan will leave you completely free and clear of short term debt for next Christmas.

If repayments on the short term debt are putting you under strain it's time to look at the longer term debt and there might be opportunities for rolling a few of these loans together into one over a slightly longer period and reducing repayments that way.

Finally, a word of warning. Don't go out splurging on the after Christmas sales until you have counted the cost of Christmas. You just might find those bargains are too costly to afford. Also, attractive and all as the sales are the current climate for retailers probably means that there will be more reductions to come so it might be wiser to wait until February or after before going on the annual bargain hunt.