The two debt traps to avoid this Christmas – and what to do instead

With five rate rises this year, petrol near $2 a litre and Christmas coming, it’s possible you might be really feeling the cash crunch.

It’s also possible you’re desperately trying to figure out how to solve it. And there are tools available, but there are right and wrong ways to try and ease the financial squeeze. Let’s lay them bare.

Buy now, pay later: The season may have you thinking something silly: buy now, pay later. With Christmas just over a month away, could you instead curb the spend and use old school pay-in-advance lay-by?

This will stop you dealing with a Christmas repayment hangover well into the New Year.

At least it is lightly regulated now, with some credit checks and responsible product approval guidelines. But it’s possible that this very thing has pushed people from Afterpay to advance-pay products.

Wage advance: Anything of this ilk, where you get your money before you have earned it, comes with a steep interest or fee cost. That this product usually carries the latter is why it escapes the National Credit Code.

I’ve lost track of the number of people who’ve said to me: ‘My costs are going up and up, but my income is staying the same.’

And not only does it cost you extra money to get access to cash you haven’t yet earned, you are getting into a downward spiral of playing catch up – with each transaction, you are eroding the money you have to spend from your future pays.

This is just a terrible strategy. So, let’s look at better ones, starting with investigating where you could cut expenses.

Relationships and hardship: You’ve no doubt taken a razor to your spend, but most people pay too much on what they believe to be ‘fixed’ costs – think utilities and insurances, and many other financial products.

Start by playing the ‘relationship’ card: pick up the phone and ask your providers if you can get a loyalty discount to match the better new products on the market (give this a Google first). If no dice, get disloyal and switch.

You also absolutely qualify for concessions with your existing providers, if your situation has escalated beyond your ability to cope. And leniency should apply even to loans. Every financial and service provider needs to have a dedicated financial hardship department and they must extend you help.

But what if the price pressures are across the board, and you feel financially maxed out?

One Stop One Story: The OSOS hub is a free service designed to help in times of financial distress, to advocate for you for a better deal.

Operated by the Thriving Communities Partnership, it was launched with a focus on domestic and family violence victim-survivors but has expanded to cover general financial hardship and related crises.

Rather than having to explain your financial situation to each one of the providers in your life, this service does it for you. There is also help available to rebuild your finances long term.

The National Debt Helpline: The National Debt Helpline administers and matches thousands of free financial counsellors around the country with people in need.

You can register online at ndh.org.au or 1800 007 007. It may take a while for an appointment, but your finances will get a once-over which could give them a second wind.

Similar to the OSOS hub, counsellors can advocate for you with financial providers, and also with Services Australia for any benefits you might be entitled. They can get you streamlined access to the no-interest loan scheme too.

They will also look bigger picture and see what else could be optimised and future-proofed for financial comfort for your family. If you are really at crisis point with the cost of living, know that there is help at hand from a centralised portal.

Ask Izzy: Ask Izzy is a free, anonymous website that connects people in crisis or experiencing hardship with local support services as immediately as possible.

It aggregates 450,000 services that can come to your assistance for survival necessities from food and shelter, to financial help and mental health counselling –

whatever it is that you need to run your life and just can’t seem to afford right now. You can access it on mobile and without phone credit or Wi-Fi on select networks. Ask Izzy is a practical lifeline that gets people over the line to get their finances sorted out.

Beyond Blue: The mental health and suicide prevention charity also has great resources on its website to help you in times of financial crisis.

You can access free mental health and financial support through the Beyond Blue Financial Wellbeing Hub, which combines emotional care with practical money management tools.

I’ve lost track of the number of people who’ve said to me: “My costs are going up and up, but my income is staying the same.” That is a stressful position and one in which many Australians find themselves right now.

What may help is to know that you are not alone. You are also certainly not without access to significant practical help. The thing to do – whatever you do – is to reach out for it.

Nicole Pedersen-McKinnon is author of How to Get Mortgage-Free Like Me, available at nicolessmartmoney.com. Follow her on Facebook, X and Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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