‘Bad’ Debt: The Christmas Gift That Keeps On Taking…

It’s almost time to start the Christmas festivities. And as South Africans, and the rest of the world, continue to face financially draining challenges, it stands to reason that many of us would want to let loose and enjoy the silly season without having to worry about money.

But is it worth incurring additional Christmas-related “bad” debt (expensive gifts, extra decorations, extra travel or food expenses not properly budgeted for) during the season? And can you really avoid what it will cost you on top of everything you’ve had to deal with recently?

Remember: Everything you buy on credit adds up in the end and is a “gift” that will continue to rob you of your financial freedom. The only “helpful” aspect of adding “bad” debt to your list of regular financial obligations is that you end up in debt.

Based on DebtSafe’s 2022 research findings, it’s clear that retail credit is the type of debt that consumers are most delinquent or delinquent on. I therefore implore you and the rest of the South African community not to allow the Grinch, otherwise known as ‘bad’ debt, to spoil your future financial endeavours.

As it’s the season of giving, give yourself and your family the opportunity to have a sustainable and secure financial future. And, because debt can haunt you for years to come, avoid more Christmas shopping during the holiday season.

What exactly is “bad” debt and why should you avoid it this holiday season?

“Bad” debt is credit that:

  • used for items that have no lasting value,
  • recently to improve your financial result,
  • diminish your wealth,
  • steal or take away
  • tends to have higher interest rates than other debt / “good” debt (these are the opposite of “bad” debt; credit you use to pay for a reasonable investment that can help increase your wealth or increase your income with the time (eg student loan, home loan or vehicle finance).

Some examples of “bad” debt include:

  • Credit cards (used during those Christmas shopping sprees);
  • Personal loans (recycle your debt – take out a loan to pay off other/new debts, eg not planned for Christmas presents);
  • Temporary loans;
  • Advance payday/cash loans: o
  • Store/clothing retail accounts (used during ‘retail therapy’ festive outings).

Instead, stick with a tailored, tailored debt management plan and stick to your Christmas budget this holiday season.

This is how:

  1. Know what your financial situation is and what your current debt amount is. Have you reviewed some recent bank statements, inspected your credit record, and determined your debt-to-income ratio? Know where your finances stand and which ‘bad’ debts to avoid/get rid of as soon as possible – it could be the warning sign you need to curb any festive spending this year.
  2. Stick to your allocated Christmas budget. Apart from the usual budget for the month of December (income – expenses = total surplus/minus), you also need to include the budget amount you have available for any Christmas-related expenses. Remember: it’s the season of the ‘gift of experience’, not necessarily valued in your money (or the bank’s money, aka debt).
  3. Set up your inventory list and stick to it.
  4. Don’t “browse” around (online or in store).
  5. Handmade / homemade gifts are worth a million dollars – use what you have available (or what you can provide depending on the skills). Make a tangy lemon syrup with these lemons on your lemon tree, or share a gift card/coupon with the big one for free hair soon). With a little creativity, the ideas are endless.
  6. Go through the clearance racks of stores and make sure you need the items you’re buying and that the price is actually being offered at a discount.

One final tip when it comes to successful debt management (and to avoid adding additional “bad” debt to your pile), is that it’s vital that you continually work on your personalized debt management plan.

Always do a thorough affordability check before taking on any debt (even Christmas debt) as this will help you determine if the debt is too much for your situation.

Don’t let “bad” debt be the joy that ruins your holidays or any future Christmases. A Merry Christmas isn’t about how much money you spend; it’s about the people you spend quality time with. So, on that note, don’t repeat the ‘bad’ debt mistakes of last Christmas.

Have a frugal Christmas!

For Neil van der Walt, Marketing Director at DebtSafe.

This article originally appeared on Moneyweb and has been republished with permission. Read the original article here.

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