For many employees in the UK, receiving their Christmas bonus not only provides them with a sense of happiness, but also a sense of relief, as this is often the financial lifeline that they have been waiting all year for. Unfortunately, the sad reality is that the majority of people fail to spend their Christmas bonus wisely and often land up struggling with bad debt, just as they were the previous year.
Usually, a person’s Christmas bonus is spent on new electronics, expensive holidays and Christmas gifts, all of which they cannot actually afford. This extra cash often gives people a false sense of freedom, making them believe that they can afford to splurge their Christmas bonus whilst they should really be spending it wisely by doing things like paying off their bad debt. Shrinking your debt will improve your monthly cash flow, reducing your financial stress.
In this blog, we outline how to spend your Christmas bonus wisely so you can avoid going into bad debt:
Christmas bonus spending tips
- Don’t spend it before you even get it
Many people go into debt during the year, with the hope of paying off their debt with their Christmas bonus. This is a classic mistake! When businesses are going through tough financial times, the first thing they do is cut back on expenses by reducing or omitting annual bonuses. Don’t make the mistake of spending your Christmas bonus before you even get it, rather wait until you receive the money before deciding what you are going to do with it.
- Settle your unsecured debt
If you are fortunate enough to receive a Christmas bonus, you should always start off by paying off some of or if possible, all of your debt. This can include things like credit card debt, income tax debt or payday loans. Using your bonus to pay off your existing debt will prevent you from becoming trapped in debt. If you are feeling trapped and your bonus won’t help you cover your outstanding debt, contact Debt Movement for non-judgemental guidance.
- Pay down your mortgage
If you don’t have any unsecured debt, then depending on the amount you receive, you could consider using a portion of your Christmas bonus to reduce your mortgage or secured loan. This offers enormous benefits, even from just a one-off payment. By paying more than the minimum amount required, you will not only reduce the time outstanding on your secured lending, but you’ll also save on the interest.
- Top up investments or your emergency fund
If you don’t have any debt or other financial responsibilities, then you should consider topping up your Lifetime Individual Savings Account (ISA) or your emergency fund.
A Lifetime ISA is a long-term tax-free savings account that will let you save up to £4,000 per year and get a government bonus of 25% (up to £1,000). As with other ISAs, you won’t pay tax on any interest, income or capital gains from cash or investments held within a Lifetime ISA.
If you have an emergency fund, then it would be wise to pay a portion of your bonus into this account. If you don’t have an emergency fund, then you should consider setting one up so you don’t have to go into debt in the case of a financial emergency.
At Debt Movement we know that bad debt happens to good people. We provide professional debt guidance and solutions that help you move out of debt..Our team has helped over 35,900 people out of debt and become financially free. Request a free callback to discuss your debt.
