Careful not to fall deeper into debt this festive season

Going into debt to buy presents or take a holiday over the festive season can leave you paying far more than you think, says Credit Ombud, Manie Van Schalkwyk.

“By the time December swings around, many consumers feel they deserve to spend money on luxuries such as branded clothing and footwear or going on a much-needed holiday, but borrowing or cutting back on your credit payments to fund these niceties can leave you with a nasty hangover come January,” he adds.

According to the latest Credit Bureau Monitor”s 2012 2nd quarter report, only 10.38 million of the 19.6 million credit-active consumers in South Africa are classified as in good standing, meaning they were up-to-date with their repayments. The report reveals that the number of consumers with impaired records increased by 170 000 to 9.22 million during the previous quarter.

“Once you fall behind in your debt repayments, it can be costly in terms of legal fees to try and get yourself out of debt,” says Van Schalkwyk. “It’s important to notify your credit provider or speak to a debt counsellor as soon as you find difficulty making repayments on any of your loans or credit cards.”

Each year consumers splurge thousands of rands on unwanted gifts, but Van Schalkwyk suggests putting together a strict budget for buying presents and sticking to it. “Shoppers who don’t have a list or plan before they head for the shops often end up spending more or making compulsive purchases leading to what’s commonly known as “buyer’s remorse’.

“Making sure you can afford the product is an important tactic, so weigh up what income you’ll be earning, deduct all your costs and expenses and see how much you are left over with.  Ensure that you have also taken into

account big expenses, such as school fees in January.

“People don’t realise that by buying things on their credit card, they will be paying interest rates of up to 21% and if they take out a short-term loan it can cost them up to 60% interest,” says Van Schalkwyk.  “That means if you’re borrowing to buy a R1000  gift, at the end of the first month the amount owing is not just the R1000 , but with the costs and interest it can already be as much as R1257,00 – excluding any insurance fees!” Van Schalkwyk suggests ten tips to ensure you start 2013 on a comfortable financial footing:

–          Don’t get sucked into advertising and marketing deals, which are designed to manipulate consumers into spending more over the Christmas period.

–          Avoid buying from stores with limited return policies  as you want to be able to return goods if you need to.  Even exchange policies mean you can’t get your money back, you can only swop your product for something else.

–          Compare prices between stores before you go shopping.  Compare advertised rates and prices and use internet sites such as pricecheck.co.za.

–          Work out how much your monthly instalment on your credit repayments will be, taking into account interest repayments.

–          Never borrow money to pay off other debts.

–          Be honest with yourself and your family about how much you can afford to spend over the festive season and set this money aside so you don’t over-spend.

–          Rather than blowing your bonus on holiday luxuries, rather set it aside to cover additional expenses in January.

–          If you apply for a loan over Christmas, be honest during the affordability assessment.  Take into account all of your loans and expenses.

–          Watch out for advertisements that offer “cheap” short-term loans with no credit checks, they may be loan sharks who will charge you very high interest rates and may not be regulated by the National Credit Regulator (NCR).

–          Instead of paying interest on debt, rather save any extra cash and earn interest instead.  Over time this will add up and you’ll be in a better financial position over the next year.

 

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