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With the festive season not too far away, Australians are starting to cut down their debt and saving to help boost their cash buffer.

According to the St. George-Melbourne Institute Household Financial Conditions Report, the number of Australian households who are drawing on their savings to repay debt is at its lowest point in nine months. It has fallen from 22 per cent to 17 per cent during the September quarter. Indicating that Australians are able to meet their debt repayments without having to dip into their savings. 

It also shows that saving for holidays (61 per cent) and being prepared for an emergency or unexpected expenses (57 per cent) were the key motivation for people to save. 

The decrease in debt and increase in savings is partly due to the RBA cash rate remaining at a record low of 2.5 per cent since August 2013. These low rates have enabled Australians to repay more on their home loans as well as save extra cash due to lower repayments. 

According to the Reserve Bank of Australia’s biannual Stability Review, on average, Australians were two years ahead on their home loan repayments. This is a significant amount of time that can save mortgage holders a lot of money in interest and if they continue at this pace, pay off their home loan sooner and be debt free. 

These statistics give a promising outlook on how Australians are managing their finances. But will this continue over the festive season? By saving for Christmas, rather than putting it all on credit, it could help reduce the financial hangover come the new year. 

So what can you do to start saving for Christmas now and avoid being in more debt in January 2015?

Avoid credit cards: Many Australians make the mistake of not keeping track of how much they have spent on their credit cards, and then spend the first few months of the new year paying it off. Your aim should be to pay your credit card in full when it is due to avoid excessive interest charges. If your festive spending is more than you can repay quickly, then the convenience of the card might end up costing you a lot extra, making those gifts and festive goodies very expensive. Treat credit cards with caution around Christmas and keep track of what you spend.

Create a budget now: Being realistic about how much you can afford to spend over Christmas is vital. Work out who you need to buy presents for and how much you are prepared to spend on each. If it adds up to more than you can afford then you may need to re-think your generosity. You will also need to factor in extra for  travel, entertainment and food costs. Make sure you include all extras so you have a good grasp of your budget. You could set yourself a goal as to where you want to be come the new year and use this as motivation to stick to your budget. 

Match dollar for dollar: If you are really determined to keep getting further ahead on your home loan, then try and match every dollar you spend for Christmas to put towards your mortgage. If you’re not able to spare that much, try to work out a percentage that you can put away and stick to it.

Use your home loan: If you have an offset account, now is the time to put it to use. It would be a good idea to put any extra cash that you save for Christmas into your home loan offset account as it will decrease the amount of interest charged at the same time. But make sure to check if your lender charges any redraw fees.