Don’t let your debt put on weight over Christmas

There is an old nursery rhyme that states: “Christmas is coming and the geese are getting fat ..” Christmas is indeed coming, but in South Africa, it is not the geese who are getting fat, it is the unscrupulous money lenders who entice unaware consumers into taking loans to buy all the enticing offers that are available during this festive season.

“Consumers always come under pressure as Christmas approaches,” says Paul Slot, Director: Debt Counselling at Octogen. “So it is a time when they should look very carefully at their budgets and make sure that they spend their money wisely to avoid incurring debt which will burden them for months to come.

“Above all, ensure that you do not neglect the regular monthly payments, such as for water, electricity, phone, rent or bond, education and instalments on items such as insurance, pension and medical aid,” he recommends.

“People tend to get over-enthusiastic with expenses when thinking of the end-of-year bonus or ‘thirteenth cheque’ and do not plan properly how this money will be used. Never forget to set a percentage of this aside for savings or for an emergency fund which will provide you with essential finances for those unforeseen events, such as a sudden sickness, an accident or a death.”

Of course, entertainment over the festive season tends to demand more money as people purchase presents and prepare for various celebrations. “It is important to set aside a very specific amount for these purchases,” Slot stresses. “It is very easy to get carried away during seasonal festivities, and the best way to avoid getting into debt and having to have recourse to credit providers is to determine beforehand exactly how much is available for these extras.”

The bonus or thirteenth cheque can be far more effectively used to reduce existing debt or to provide funds for early payment of such items as education, Slot points out. “Above all, do not use this windfall to purchase goods which are going to increase the debt burden in the new year. South Africa has not yet fully recovered from the recession and it is more than likely that more jobs will be lost and that the economy will still be sluggish.”

This is one of the reasons why he strongly suggests that families examine the current state of their finances and plan a budget for 2011 that takes into consideration the normal household expenditure, (which includes food, communication, entertainment, security, travelling costs, water and electricity), financial services (which includes insurance products, medical aid, pension and savings) and debt repayments.

“Octogen has a 35:25:35 budget principle which proves most effective in planning budgets,” Slot continues. “We recommend allocating 35% of monthly income to household expenditure, 25% to financial services and 35% to debt repayments. This leaves 5% of monthly income which can go towards emergency savings. Implementing this kind of discipline will improve spending patterns and ensure that debt does not get out of hand.”

For those who already have cash flow problems and have difficulty servicing existing debt, Slot recommends consulting a National Credit Regulator-registered debt counsellor for professional assistance. “These counsellors will be able to evaluate current income, your costs and obligations and help you get your finances back on track.”