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This year, swim against the tide
The festive break can be a tempting time financially, starting on Black Friday and extending into the New Year sales with marketers trying to entice consumers to buy, often on credit.
Besides the lure of shopping, people are on holiday, entertaining and enjoying themselves. By the time they go back to work and the children return to school, they start the New Year playing financial catch-up.
There are other factors that contribute. Some companies pay employees in mid-December, so salaries have to stretch a month-and-a-half until the end of January. Many employers cannot pay full 13th cheques or year-end bonuses, so consumers have no cushion to cover the extra festive-season expenses. In both cases, many turn to loans to make up the difference.
Then there are the post-holiday expenses such as school uniforms, fees and transport, which escalate the financial pressure and can result in people taking on even more debt.
This isn’t anecdotal, but a cycle that repeats itself year after year. It’s a treacherous tide, but with some planning you can swim against it.
Benay Sager, chairperson of the National Debt Counsellors’ Association says that its members see enquiries about debt management spike every January and February. This has intensified over the past two years as higher inflation and interest rates exacerbate the situation.
“Typically, what we see happening in mid-January and extending into February is that consumers find themselves in a pinch and borrow money to make it through until they get paid. The problem is that the repayments on these loans add long-term pressure on households which are only just keeping their heads above water. One unexpected expense or emergency can then result in serious financial difficulty.”
He suggests the following for people wanting to swim against the tide of borrowing this holiday period:
Plan ahead: If you get paid early in December, remember you will need to stretch your salary until the next paycheque. Allocate money for normal living expenses for the full period, factoring in January expenses, before you decide how much to spend on gifts and entertainment.
Also consider your existing debit orders will still run in December. If there isn’t enough money in your account to cover these, you might fall behind on your payments and your credit score could be affected. Your bank may also penalise you by charging additional fees.
Be considered: If you are lucky enough to get a bonus, you could suddenly have extra money in your account. Although you may feel flush, resist the temptation to splurge. Think first about your financial commitments and consider saving or investing some to provide a financial cushion for the New Year.
Get help if you need it: After a difficult year, most of us need a break and time to recharge. That’s not going to happen if you spend the holidays worrying about how much you owe and how you’re going to make ends meet in January.
A reputable debt counsellor will do a free assessment, advise whether you can benefit from debt counselling and explain how the process works. Having someone to help you can take away much of the anxiety associated with dealing with debt.
Sager adds that it is critical to keep up debt repayments over the holiday break. NDCA data shows that on average it takes up to two years for consumers to catch up on payments missed in December. In the current economy, it’s likely that now it could take even longer.
“While we advise people to keep up repayments, we recognise that this will not be possible for everyone. If that is the case, get help. Delaying can negatively affect your credit record, put your assets at risk of repossession and if you wait too long, debt counselling may no longer be an option.”