‘Bad’ debt: the Christmas gift that keeps on taking…

It’s almost time for Christmas festivities to begin. And, given that we 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 off some steam and enjoy the silly season without having to worry about money.

Is it, however, worthwhile to incur additional, Christmas-related ‘bad’ debt (expensive gifts, more decorations, extra travel, or food expenses not properly budgeted for) during the season? And, can you truly shy away from what it will cost you on top of all you have had to deal with recently?

Remember: everything extra that you buy on credit adds up in the end, and it’s a ‘gift’ that will continue to rob you of your financial freedom. The only ‘giving’ aspect of adding ‘bad’ debt to your list of usual financial obligations is to end up over-indebted.

From DebtSafe’s 2022 research results, it is evident that retail credit is the type of debt consumers are primarily behind or in arrears with. Therefore, I implore you and the rest of the South African community to not allow the Grinch, also known as ‘bad’ debt, to spoil your future financial endeavours.

Since it is the season of giving, give yourself and your family a chance to have a secure, sustainable financial future. And, since debt can haunt you for years to come, rather avoid any extra 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:

• is used for items that don’t have lasting value,
• does little to improve your financial outcome,
• decreases your wealth,
• steals or takes away from you,
• tends to have higher interest rates than other/’good’ debts (these are the opposite of ‘bad’ debt; credit that you use to pay for a sensible investment that can help build your wealth or increase your income over time. For example, a student loan, home loan or vehicle finance).

Examples of ‘bad’ debt include:

• Credit cards (being used during those Christmas shopping outings);
• Personal loans (recycling your debt – taking on a loan to pay off other/new debt, for example, non-planned for Christmas gifts);
• Temporary loans;
• Payday/cash advanced loans: or
• Retail store/clothing accounts (used during festive ‘retail therapy’ outings).

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

Here’s how:

1. Know what your financial situation portrays and what the amount of your current debt is. Have you scanned through some recent bank statements, inspected your credit record, and determined your debt-to-income ratio? Know where your finances are at and what ‘bad’ debts to avoid/get rid of soonest –  it can be the warning sign you need to curb any festive spending this year.
2. Stick to your allocated Christmas budget. Apart from your usual December month budget (income – expenses = surplus/minus total), you need to also include the budget amount that you have available for any Christmas-related spending. Remember: It’s the ‘gift of experience’ season, not necessarily valued in your money (or the bank’s money, also known as 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 zillion bucks – use what you have available (or what you can offer skill-wise). Make a zesty lemon syrup with those lemons on your lemon tree, or share a gift voucher/coupon with gran to give her a free haircut soon). With some creativity, the ideas are endless.
6. Go through clearance racks at the shops and make sure you need the items that you purchase and that price is in fact offered at a discount.

One final tip when it comes to successful debt management (and to avoiding adding additional ‘bad’ debt to your pile), is that it is vital that you continually work on your personalised debt management plan.

Always do a thorough affordability check before taking on any debt (even Christmas debt), as this will help you determine whether the debt is not more burdensome to your situation.

Don’t let ‘bad’ debt be the killjoy that ruins your festive season or any future Christmases. A Merry Christmas is not about how much money you spend; it is about the people you spend quality time with. So, on that note, don’t repeat the ‘bad’ debt mistakes of Christmas past.

Merry frugal Christmas!

Neil van der Walt is marketing manager at DebtSafe.