November and December bring with them the year’s highest spending trends across the world, as consumers ramp up for the Festive Season. In recent years, South African retailers have also taken advantage of international trends, offering incredible and seemingly irresistible savings through “Black Friday” and “Cyber Monday”.
Further into the Festive Season, many individuals and families may also embark on annual holidays away from home – a practice that can attract high, and sometimes unplanned, costs. For those who have planned and saved, this is a time to enjoy the rewards of their hard work. However, those who spend large using credit and the hope of potential income, are advised to practice extreme caution to avoid falling into a debt trap.
“In the rush and excitement of the Festive Season, consumers can sometimes forget about their commitments, like insurance premiums, car payments, and a monthly budget,” says Rudolf Mahoney, Head of Brand and Communication, WesBank. “Sometimes they spend a bonus they haven’t yet received, or they simply forget that their December salary has to last until the end of January. Now, more than ever, it’s important to keep track of money, to avoid missing payments and falling into arrears, because that’s negative for your credit record.”
WesBank’s historical data shows that the three months following the Festive Season see an increasing, and the year’s highest, number of people applying for debt review. This is a process that follows either months of arrears or consumers simply realising they can no longer meet all their monthly credit commitments. While in debt review, consumers relinquish control of their finances, which are handed over to debt counsellors to ensure all payments are met.
“Every year, in January to March, there’s a spike in debt review applications. These are more than likely people who have heavily relied on credit in the previous year, and then overspent during December,” says Mahoney. “Once they return from their holidays they’re hit with the reality that they’ve forgotten about important financial commitments, often with extremely negative consequences for their budgets.”
WesBank has sound advice for those consumers who are looking at keeping their budgets and credit records in a healthy condition:
1. Don’t spend what you don’t have
Many people anticipate an annual bonus, and spend money on credit in advance – with the plan to repay their credit using a bonus. This is a risky practice. Consumers should rather spend money they have in the bank. This is especially important in the current uncertain economic climate, where businesses may struggle to afford rewarding employees with bonuses.
Have patience and only spend what you have in the bank. Resist the temptation of early Festive deals, because these could have a negative impact on your budget.
2. Early December pay cheques are for January
With the Festive downtime and annual holidays, businesses often pay employees earlier in December. This pay cheque is intended to be used for the next month’s budget – as with any other month of the year – however some consumers may see this as an early windfall, and use it to finance their Festive plans.
This can compromise a household budget that has existing credit commitments. Consumers should rather transfer those early December salaries to savings accounts, and use them for January’s commitments. Failure to do so will result in missed payments, such as vehicle loans instalments, which is an immediate negative for any credit score. Additionally, this can result in consumers taking on additional debt to meet their obligations and see out the month, setting themselves up for a dreadful start to the New Year. Those consumers who realise their arrears position in time can still phone their banks to make a payment arrangement, to avoid extended arrears.
“Careful planning and responsible spending are far more rewarding than taking advantage of Festive deals, or using additional credit facilities to accommodate a way of life you cannot afford,” says Mahoney. “Instead, save up for the year ahead and try to live a credit-light lifestyle – one where you only use credit facilities for the absolute necessities, with enough money for servicing your loans as well as spending on yourself.”
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