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05 Dec 2011

Tips To Avoid The Festive Debt Trap

Debt No Comments

Staff Writer @ Lucid Living

It’s two weeks before Christmas and, like a tsunami, advertisements are flooding newspapers with specials, or bargains in the name of the festive season.

These advertisements are surely going to drive consumers into stores because they have some extra cash to spare this time of the year.

Some service providers have tried and tested methods of attracting them to their products.

The advertisements range from no deposits to a long-term loan with repayment breaks of one to two months that are punted as “Festive Season Specials”.

For example, Chevrolet, in a recent advertisement, were offering consumers to purchase its hot Chevrolet Spark with a zero deposit.

Interested consumers would pay an instalment of R1699 a month if they take up this offer, but the catch is that the final instalment balloons to a whopping R41000.

Consumers do not realise they are getting themselves into a tight corner when entering into a no deposit agreement at the time of purchase, because they would have to pay an astronomical amount when the contract comes to an end, or have their car repossessed if they have not raised the required instalment.

For customers who bought furniture based on a no deposit agreement, the trick is that the deposit is normally added onto the monthly instalment, making it difficult for consumers to keep up with payments in the long run.

And the “buy now and pay later” items have a flip side to them at the end of the day.

The credit ombudsman, says consumers often spend on big ticket items such as vehicle, furniture and electrical appliances during the festive season, without checking their contracts properly. Then in the new year, consumers come knocking on its door looking for help after carelessly entering into credit agreements.

“Consumers often focus on owning goods and getting what they think is a bargain, then have to pay for their purchases after the holiday season,” he says.

He says the popular special of “buy now, pay later” which is currently being promoted sounded very convenient, but could come at a high cost.

Consumers spend too much at Christmas and fall behind with their debt repayments in the new year. Consumers need to spend wisely in the festive season and start the new year debt-free.

While it is easy to get drawn into the marketing and advertising hype and to over-spend during the festive season, consumers should avoid borrowing to fund expensive gifts and holidays. Not planning ahead for festive season expenses is one of the main reasons people slip further into debt.

Tips To Avoid The Festive Debt Trap:

  • Draw up a festive season budget; don’t forget to take your bonus into consideration.
  • Plan how much extra you want to spend over the festive period.
  • Your budget should include rent, lights and water, insurance, debt, school fees, stationery, school uniform, lunch box and bus fare.
  • Make provision for all unseen expenses, such as donations, unexpected visitors.
  • Buy goods that you need.
  • Stick to the budget which you have set yourself.
  • Avoid getting into debt unnecessarily – it’s often better to save in order to buy goods for cash instead of buying them on credit.
  • Shop around for best prices, or wait until they are on a bargain in January.
  • Adjust your entertainment, alcohol, gambling expenses to realise your goal.
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