Taking a loan for the festive season to fund your holiday celebrations may seem like the only option when you can’t afford to splurge on your loved ones, but it has dangerous consequences. Here are X reasons why you shouldn’t take a holiday loan and how to avoid festive loans.
You don’t need yet another personal loan
Borrowing money to buy consumer goods or have fun is never a good idea. Festive debt is just another unsecured debt creditors package as a ‘must-have’ to fund discretionary expenses such as entertainment, luxury goods, gift shopping or holiday travel.
Think of a holiday loan as a seasonal personal loan; even when you have a good credit record and qualify for a reasonable interest rate, it is still a high-interest debt that you must repay long after the festivities are over. Ask yourself: Would you still want to pay for those expensive presents a year later, with added interest? Probably not.
You already struggle to repay current debt
According to SARB and Stats SA data, South Africans routinely spend 75% of their take-home pay on debt, including unsecured credit for consumption and discretionary spending. For most consumers, holiday loans add to the already credit-funded day-to-day expenses.
If you’re barely affording to pay back existing debt, taking a holiday loan – assuming you qualify for it – is akin to the last straw that broke the camel’s back. Opt instead for debt-free holidays while you get the debt problem under control. Seek a debt counsellor if you’re in danger of defaulting on debt repayments, and avoid any loans in the meantime.
You have to put up with more debt stress
Holidays should always be a happy time to be cherished and enjoyed with family and friends. Yet, most South Africans live through it shadowed by debt and guilt, as the cost of servicing debt – and their daily livelihoods – is rising in the country.
Do you live in fear of not having enough money and living with constant debt? Debt stress is real, and it can take a significant toll on your mental health and well-being.
Think long and hard before taking a holiday loan. Holiday loans are likely to put you deeper in debt and more stress while you wonder how to repay creditors or dread checking the bank account in the new year. Can you put up with the additional pressure?
You reduce your chances of savings (and retirement)
Given the debt statistics, it’s no wonder South Africa’s savings rate is so low, affecting any prospects of building wealth or retiring. More debt means fewer chances for putting away savings for emergencies, future plans, investments and retirement funds.
The more loans you take, the greater the debt repayments, which will take a more considerable portion of your monthly income. Ask yourself how much a holiday loan repayment will take from your salary. Are you prepared to postpone your savings or retirement goals another year (or more) for the sake of more gifting and celebrations?
You start the new year with bad debt (and bad habits)
When you take a holiday loan, you may be tempted to repeat the cycle every time you find yourself dreaming about the perfect gift or that long-awaited family vacation. You may think you deserve the spoil after a challenging year (blame it on the pandemic). Even so, you will benefit far more from building good financial habits instead, such as saving money and reducing debt in the coming year.
Make it a new year resolution to take better care of your finances and decrease debt to become less dependent on credit. A debt counsellor can assist with reducing your monthly repayments and freeing cash by consolidating all your debts into a single one at a lower interest rate. You may find it easier to follow the new repayment plan, never miss a monthly instalment again, and have enough money to allocate to those things that matter.
The best part? You’ll slowly build a debt-free future with less stress and guilt over finances.
Our professional ezDebt advisers help you stay on track with debt repayments through affordable debt counselling. All our debt counsellors are registered with the National Credit Regulator (NCR). Get in touch at www.ezdebt.co.za.