Splashing out over the festive season as a reward for making it through 2020 might be tempting, but some restraint could ensure the Christmas cheer lasts into the New Year.
According to the National Debt Counselling Association (NDCA), many South Africans’ festive season shopping sprees result in them skipping December debt repayments.
It anticipates that this trend will be worse this year because of the economic impact of Covid-19.
"After a terrible year you may feel that you deserve a little spoiling. The problem is that there are long-term consequences to overdoing it and not having enough money left to pay your debts, "explains Shafeeqah Isaacs, head of financial education at financial services provider, DirectAxis.
The NDCA reports that historically, on average, it takes up to two years for consumers to catch up on payments that are missed in December. Given the perilous state of the economy, it’s now likely to take longer.
"Unfortunately, what many people don’t consider when they skip payments, is the negative impact on their credit score. Your credit score tells banks and other financial services providers how reliable you are. A poor credit score could mean they either won’t lend you money or they’ll charge you higher interest to offset the risk."
Something else to consider is that many companies pay employees early in December. This means you may need to live on your December pay cheque for up to a month-and-a-half before your next salary payment at the end of January.
"In the past, a Christmas bonus may have made it easier to make it though to the end of January, but this year a lot of employers won’t be paying a thirteenth cheque."
So how can you have a happy Christmas without it affecting your prospects of a prosperous New Year?
Shafeeqah and some of her expert colleagues at DirectAxis have put together a few simple tips.
- Decide what you can afford to spend before you start shopping. Make a list of all the festive season expenses such as gifts, entertainment and travel and how much you have for each.
This should also help you decide who you’re buying gifts for and how much you’re prepared to spend on each person.
It may also prompt you to think about gift-buying strategies. For example, rather than you and all your siblings buying small gifts for your parents, would it be better and save everyone some money if you all contributed to something meaningful?
If you’re a member of a book club or other social group, rather than having to buy a gift for everyone, suggest doing a secret Santa where everyone draws someone else’s name and buys only that person a gift.
When you’re drawing up your budget, if you can, try to put a little aside for unexpected expenses, because even over the holiday season, life happens.
- Do your homework before you shop. When you’ve decided who you’re buying for and what to get them, compare prices. The time and data you spend doing a few quick online searches will be well worth it.
Once you know what you want and the best place to get it, make a list before you do any shopping. This will help you avoid impulse buys.
- Because this year we need to keep our gatherings far smaller, don’t be shy to ask for contributions. Most people, especially family, won’t mind being asked to bring something to a small festive-season celebration.
Specify what people can bring to avoid getting three potato salads and no dessert.
- Stay on top of your spending. By keeping an eye on what you’re spending as you go and making sure you’re more or less sticking to your budget, you should be able to avoid running into trouble before your next pay cheque.
If you do find yourself running into difficulty don’t just stop paying some debts or accounts. It’s better to speak to the lenders or companies that have extended the credit and try to agree a payment plan.
"Some sensible planning ahead of the festive season will save you money over the holidays and importantly will mean that you start 2021 on a sound financial footing with your credit score intact," says Shafeeqah.