By Emsie Martin
It is almost Christmastime, yet – like your fellow South Africans and the rest of the world – most of us are still facing financial challenges.
Obviously, everybody is looking forward to a breather and a festive season to be enjoyed. Pondering over the fourth wave of Covid-19 and beaches that may be closed again is bad enough, without having to worry about financial matters as well.
At this stage it probably is not advisable to incur additional Christmas-related debt, such as expensive gifts, lots of decorations, and additional travel or food expenses you have not properly budget for. Remember: anything extra you buy on credit will eventually pile up and turn into a “gift” that will deprive you of financial freedom for a very long time.
“Statistics show that South African consumers have been looking for more retail therapy since the beginning of the Covid-19 pandemic. For many people, overspending during the Christmas season is a common occurrence. For this reason, South Africans are strongly encouraged not to allow bad debt to have a detrimental effect on your future financial position. Since this is the season of giving, give yourself and your family an opportunity to have a safe and sustainable financial future. And because debt may haunt you for years to come, stay away from any extra Christmas shopping during the festive season,” emphasises Carla Oberholzer, debt adviser at DebtSafe.
Exactly what is “bad” debt and why is it better to avoid it during this festive season?
“Bad” debt is credit that –
- is used for items that do not have lasting or long-term value;
- does little to enhance your financial position;
- decreases your “wealth”; or
- tends to have higher interest rates than other or “good” debt. (“Good” debt is the opposite of “bad” debt and is credit you use for appropriate investments that may help you in building wealth or that may increase your income over a period, such as a study loan, a home loan or vehicle financing.)
Examples of “bad” debt:
- Credit cards (used during Christmas shopping sprees)
- Personal loans (salvaging of debt – when you get a loan to repay other or new debt, such as debt incurred for unplanned Christmas gifts)
- Temporary loans
- Payday or cash loans
- Chain store / clothing accounts (used during “retail therapy” sprees)
It is more advisable to carry on with a proper personal debt managing plan during this Christmas season and stick to your Christmas budget. How to do it:
- Be aware of your financial situation and of your total debt amount.
Have you glanced at your bank statements recently, calculated your debt-to-income ratio and checked your credit record? You should know what is happening in your finances and which “bad” debts to avoid or to repay as soon as possible – this may be the warning sign you need to curb any festive spending this year.
- Stick to your planned Christmas budget.
Apart from you monthly budget for December (income – expenditure = surplus/shortfall), you should also include the budget amount you have available for any Christmas-related expenditure.
- Draw up your shopping and supplies list and stick to it.
- Do not browse, whether online or in the shops.
- Hand-made or home-made gifts have much more sentimental value – use whatever you have available or what you can offer as far as skills are concerned. Ideas and creativity have no limits.
- Run through the bargain sale shelves at the shops, making sure you do indeed need the items you buy and that they are indeed offered at discount prices.
Finally, when it comes to successful debt management (and trying to avoid additional “bad” debt), continuously paying attention to your personal debt management plan is crucial. Always perform an affordability determination before incurring any debt, as this will help you determine whether the debt may result in greater harm to your situation.
Do not allow debt to spoil the fun and destroy your festive season, or any future Christmas. A merry Christmas is not about how much money you spend, but about the people with whom you spend quality time. Avoid repeating mistakes of a previous Christmas.
Restore your debt situation by contacting one of our competent debt advisers at: email@example.com or SMS your name and surname to 30898 (free SMS).
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SOURCE: Carla Oberholzer – debt adviser at DebtSafe, www.debtsafe.co.za