A nip is in the air, and the festive season is on. You must have made many a shopping list for yourself and your loved ones this season. There are offers galore on just about every imaginable product or service, and it’s a good time to treat yourself after what may have been a difficult year for you.

While it’s important to enjoy yourself for now, it’s also important that your finances remain unscathed at the end of the festive season. There are several ways to finance your shopping. Some popular options today are credit cards, buy now pay later loans, personal loans, and other secured forms of lending.

Let’s look at some ways to leverage these options smartly, have a great shopping experience, and also not have burgeoning post-festival debts.

Budget, budget, budget

This cannot be emphasised enough. Our wants are unlimited. But our needs — like our money — is limited. Therefore, we must set some boundaries with our festive shopping.

Surely, we want to buy things not just for ourselves but friends and family, too. But let’s not forget the financial constraints most of us faced just a few months back as the pandemic raged on. Therefore, determine the amount you’re comfortable spending on your festive shopping, and remain within that limit. This is especially important where the shopping is being done on borrowed funds.

Select the right option

Credit cards, BNPL loans, and consumer loans are some convenient financing options available to you where the expenditure is expected to be small to medium — let’s say from a few thousand to a couple of lakhs. These loans are not too big and can be paid off easily in the short term. But if you need a much bigger loan as well as a longer repayment tenure, you can choose a personal loan. If you’d prefer a lower interest rate, you could borrow against an asset such as gold.

As a thumb rule, if you’re borrowing for the short term — typically under a year — you could take unsecured loans at a relatively higher rate of interest. But for longer periods, you should consider loans with lower rates of interest to reduce the long-term costs of borrowing.

Leverage your existing loan

You may be looking to purchase a high-ticket item — for example, a costly electronic item or even a car. These may require large borrowings that may have to be repaid over a tenure longer than a year. For example, a car loan can be repaid over seven years.

If you have an ongoing loan such as a home loan and you’ve been timely with your EMI payments, you may consider leveraging it by taking a home loan top-up loan. This loan is connected to your home loan and may attract a much lower rate of interest than an unsecured loan such as a personal loan.

A large government bank’s lowest rate on home loan top-ups is currently on a par with its lowest car loan rate but lower than its personal loan rate. This is a smart way to streamline your borrowings and lower your interest payments.

Mind the credit utilisation

It’s easy to exceed your credit card spending limit on a shopping spree. If your spending limit is proving inadequate, you should contact your bank for an increase.

Normally, when the limit is hit, it is automatically increased for borrowers who are timely with repayments. If it hasn’t happened for you, you should speak to your bank. This is important not just to help you enjoy your shopping uninterrupted but also to keep your credit utilisation ratio (CUR) low. Ideally your CUR should be under 30 per cent. This prevents your credit score from taking a hard hit.

Repay dues in full

After setting a budget, staying within it, and borrowing smartly, you also need to repay your dues. If your borrowings are unsecured (credit cards, BNPL, or personal loans), ensure you do not keep them pending for long. Unsecured credit has the highest interest rate. For example, your credit card dues could easily attract an annualised interest rate of 40-50 per cent.

Ensure you repay these in full and on time. Do not allow the festive borrowing to drag your finances down in the non-festive months to come.

Clear dues before big buys

If your festive shopping is going to be big — a home, a car, or something else that’s costly — ensure your credit slate is clean.

If you have petty dues such as a credit card balance, you may want to clear them off before you apply for a home or car loan. This will not only improve your credit score but also spare more of your monthly income to repay the dues on the new loan.

Your new lender would prefer that you aren’t saddled with older debts. A better credit score would also ensure you get a low interest rate on the new loan.

When you borrow in any form, it’s important to keep track of your loan’s impact on your credit health. Always do a monthly check of your credit score, especially after a shopping spree. If your score is below 750, work on it to get it back up.

The writer is CEO of BankBazaar.com