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How to avoid excessive debt this Christmas

Christmas is already approaching by leaps and bounds, a date that makes most people shiver when it comes to their pocketbook. Therefore, before starting to buy gifts, the Head of Public Accounting and Auditing of Pacific University, Arturo Farías assures us the key is planning.

Four out of ten Chileans are in debt or have trouble making ends meet. Learn the key to properly manage the family budget and avoid falling into a deep hole of debt coming into Christmas. "First you have to make a budget that defines how much we are willing to spend on this item or that item. Then you must not try get out of your budget under any circumstances. And finally, ideally pay in cash your purchases. Although paying in easy monthly installments sounds like a "good idea", but it isn't so much considering that vacations and expenses that will come along in March are closer than we think and we must be able to make it to that date in good standing", indicates the specialist in finance.

And it is a fact that we will not get out of paying for that Christmas item when we are presented with the expense associated with the holidays. "To enjoy the holidays with peace of mind, you should have an approximate budget of the expenses that will be incurred and allocate a small saving throughout the year for this purpose," suggests Farias.

Next, we will see the terrible month of March, which carries with it an important dose of financial stress, associated with expenses that are added among school enrollments, uniforms, school supplies and traffic permits, among others. What if money simply doesn't stretch all the way? "Using a line of credit is an alternative, as long as we do not delay your payment for too long. If we are in bigger problems, with a deficit that will drag for months, asking for a loan is a better option because generally, interests are lower," recommends the Head of Public Accountanting and Auditing Department at Pacific University.

Keys to avoid indebtedness

In general, to avoid over-indebtedness, Arturo Farías offers 6 fundamental tips for a better management of personal finances:

  • Consider two scenarios, the first and most important is the day to day, that is, the normal activities we develop and the financial aspects they present.
  • Consider contingencies. These are the ones that can cause us financial troubles times. The most common and dramatic contingencies, in some cases, are health problems and long periods of unemployment. To face these situations, it is important, for example, to have a source of savings, to allocate part of your monthly income to unemployment insurance, housing and/or education, to have life insurance with a repayment option, which allows the beneficiaries to have a cash amount in case of accidental or natural death of the insured and, in the case of survival, delivery of a benefit.
  • Have a good monthly spending budget to sort the finances and start identifying possible savings. A budget must have all the items we spend each month, such as food, education, housing, entertainment, transportation and health, among others, and the percentage we owe or want to allocate to each one of them.
  • Identify sources of savings. It is advisable to keep a record of our expenses for a period, which will allow us to understand what we are spending money on, and that what is not always so necessary and make small daily savings. That will allow us to generate a significant source of savings.
  • Pay attention to borrowing with credit cards. If something unforeseen happens that is very important and we must resort to borrowing, we should keep in mind that at times the credit card will be the only means available to satisfy our basic needs. The important thing is that we know how to use credit cards efficiently so as avoid indebtedness. For the same reason, it is suggested to pay as much as possible, the total of the agreed fee and only in certain cases to pay the minimum indicated on the statement. The advantage of the credit card is that it allows, if we are rigorous in our payments, sometimes to pay with three installments at the same price as cash without interest. An alternative here allows the use of the card payment to make our money stretch farther, without being exposed to any interest.
  • Pay attention to borrowing on credit. Before you sign contract for a bank loan or other product or service you should get a quote and compare the different options. You must request an amount according to the immediate needs and no more, and ensure that you have all the necessary information. Special attention should be paid to the interest rates reported daily in the different bank branches when you apply for a loan," he warns.