The festival season is here, and people are gearing up to celebrate, which translates into a spike in spending. Here, we look at a few options through which shoppers can manage their spending to avoid excessive outflows.

Bonus

Most Indian companies tend to give variable pay/bonus to their employees during the festival season. On an average, a month’s salary is given as bonus. If this amount meets your festival spending budget, rejoice. But what if you need more money?

Credit cards

Credit card is a good option for meeting any excess expenditure that you might incur after having spent your bonus, provided you can repay your dues within the billing cycle.

Using a credit card gives you an interest-free period of one month. If you want to do online purchases, credit card is one of the best options as you can get good offers, too. Banks offer substantial cash-backs of up to 10 per cent for credit-card purchases made on e-commerce portals such as Amazon and Flipkart.

EMI options are also available on cards.

Ideally, use your bonus for a major portion of your purchases and a credit card for only relatively smaller spendings. The composition will depend on the expenses you are likely to incur, your bonus amount, liquidity and your ability to repay the credit card dues.

If not repaid on time, credit cards can turn into the costliest option. This is due to the higher interest rates charged by card providers — 30-40 per cent per annum, depending on the type of the card.

If you feel that you will need more time to repay, there are other options.

Overdraft, personal loan

Personal loans are one such option. But it is costly and also may not be suitable for smaller amounts.

Banks also offer an overdraft facility on salary accounts, which may be a better choice than a personal loan.

However, you need to meet the eligibility criteria of the bank to avail yourself of the overdraft facility. Your account should have been credited with salary for at least three consecutive months, prior to your application. Banks such as State Bank of India and ICICI Bank offer twice your net monthly salary as overdraft. Banks might also place a ceiling — like in the case of HDFC Bank, which caps the maximum overdraft amount at ₹1 lakh. HDFC Bank also requires you to earn a minimum net monthly income of ₹15,000 to be eligible for an overdraft.

Minimum documentation, faster processing and easy availability are the biggest advantages of taking an overdraft. The processing fee is waived in some cases. Interest rates charged vary from 10 per cent to over 20 per cent.

Though banks do not explicitly state the interest charged on an overdraft, they usually levy 100-200 basis points higher than that for a personal loan, according to experts.

Even then, the interest outgo from an overdraft facility will be much lower than that from a personal loan. This is because the interest is charged only on the amount used from the overdraft. That is, say, you get ₹1 lakh as overdraft and use only ₹50,000. The interest will be charged only on the ₹50,000. Also, the interest will be charged only from the day you use the amount from the overdraft. In case of a personal loan, the interest is charged on the entire amount borrowed and that too from day one, irrespective of how much you have used from the loan amount.

The repayment tenor for overdrafts is generally low — 6-12 months. Personal loans are offered for a period of up to five years, or even more in some cases.

Choose the most suitable option, depending on the amount you want to spend and your ability to repay or service debt.

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