Christmas spending to test personal finances

A combination of post-election confidence, low interest rates and increased savings has helped to stabilise financial stress in Australia, but consumer credit bureau Dun & Bradstreet warns that it risks rising as the Christmas holiday season kicks in.

Consumer debts often accrue during the Christmas period. In January this year, debt referrals to D&B grew by more than 15 percent from the previous quarter and the Consumer Financial Stress Index reached its highest point at 24.9 points.

The fall in financial stress has been attributed to the combination of lower interest rates and an increase in household savings.

"With negative economic news circulating for the majority of 2013, particularly about job cuts, consumers have focussed saving more money, and getting on top of their debts," said Danielle Woods, Director of Corporate Affairs at Dun and Bradstreet.

"While this behaviour has had a detrimental impact on sections of the economy such as retail sales activity, the flipside has been an improvement in consumers' credit position. "

As the Christmas holiday season approaches, Australians are being encouraged not to over-extend themselves. New changes to credit laws this year means that any missed bill payments are recorded by banks and will now appear on your credit file. 

Additionally, there is widespread views that interest rates will start to rise in 2014 so households should be preparing themselves for this, especially if things are already tight. 

Financial comparison website Mozo urges consumers to get savvy about their finances in the lead up to Christmas. Simple changes to the financial products that they have can make a massive difference to the average monthly budget. Here are some top tips.

1. Find the lowest rate home loan for your needs. A 0.50% difference in home loan interest rate can save you over a $1000 a year in interest.

2. Stop paying high interest on your credit card. Credit card interest rates can be as high as 20%. If you need a credit card, switch to a low rate card or better yet, get a debit card.

3. Set a spending budget. Put a set weekly or monthly spending budget into your regular transaction account and put the rest of your money into a high interest savings account. Every bit of interest counts.

4. Stop paying unnecessary fees. Automate bill payments so that you won't be lugged with overdue fees (and bad credit marks). Get cash out at the supermarket or store and stop paying unnecessary ATM fees.