Do you need credit to survive Easter?

Easter weekend is here and with it the expectation of celebration. While there is nothing wrong with this, it often means spending more money than you bargained for.

If this was your experience last year, you may try to avoid this by taking out credit this year. But is this the best option for you and your pocket?

This week Justmoney explores whether you should consider taking on additional credit his Easter and if not, what the alternative options are.

“Consumers are more inclined to take out credit over the Easter period due to a culmination of increased spending requirements over the last five months,” says Cowyk Fox, managing executive of everyday banking, RBB SA, and Absa Group.

Starting with the festive season in December, followed by school and other educational fees in January and February, and finally ending with Easter holidays.

Clever marketing tricks, both online and at the stores, further encourage spending.

“Key retail periods, such as Easter, are designed to make you spend more through targeted deals and with tactics such as ‘mega savings’,” Lettie Mzwinila, business development manager, Allan Gray, explains.

“The hype lures us in. From special deals and discounts to holiday offers, it is very hard to resist temptation. This can encourage us to take out credit to buy those things we cannot afford,” she adds.

But can this lead to over indebtedness?  

“In a perfect world, if you are honest with your income and expense declaration during the credit application process and you apply through a reputable credit provider, you should be safe from over-indebtedness,” says Fox.

This because the provider will be tasked to comply with regulations and will ensure that your repayment is in line with your affordability. Signing with a trusted financial credit provider also gives you the safety of thorough customer experience, especially when you fall into arrears.

However, even if you can afford it, it is not advisable to take out additional credit for expenses that aren’t utterly necessary.

This is because the unexpected, such as unemployment, health issues, and accidents, can occur at any time and you may then find yourself unable to access credit when you really need it.  

What are the other financial dangers?

While there are no real financial dangers per se of taking out loans during this period as opposed to other periods in the year, there are some risks that may arise.

According to Fox here are a few:

1. Spending more funds on non-tangible items, such as holidays, might lead to higher non-repayment over the longer term since customers are not repaying anything of long-term value (such as an asset).
2. Financial credit providers have a higher tendency of outsourcing customers in arrears to External debt collectors to manage increased volumes. This means if you are already indebted you may receive incessant calls from collectors.
3. Your credit profile may be negatively affected as you shop around trying to secure the best offering.
4. You may overlook the reality of your financial situation and land yourself in further financial trouble by accessing more credit.

Surviving this period responsibly

These risks may be known to you, but do you know how to combat them? Fox, Mzwinila, and Rita Cool, certified financial planner at Alexander Forbes Financial Services, weigh in:

1. Keeping your credit healthy

Before taking out a loan, it is important that you do all your research. This not only implies shopping around to find the best offering but also assessing your credit and financial health.

As with your physical health there are certain numbers that also inform your financial health, and this includes your credit score. Checking your credit score is one of the ways in which you can best be pro-active about your financial management.

South African credit bureaus allow for one free credit report annually.

“Other tips include staying away from loans with terms less than 6 months as you will pay exorbitant prices. Taking out credit protection insurance with your loan to protect repayment capability in case of an unfortunate event is also vital,” says Cool.

2. Get debt help when you need it

Being realistic about your debt burden is key. This means realising when you need help managing your debt.

Often around holidays such as Easter consumers land themselves in debt by spending more than what they can afford, taking on additional debt, and often ignoring their existing debt responsibility. This can further land them in trouble with their creditors and impact their credit score.

However, there are debt solutions available to you. Debt counselling and debt consolidation are offered by increasingly more debt management providers in South Africa. These involve rehabilitating your debt by stepping in and acting as the go-in-between for you and your creditors in the aim of getting you debt-free.

Here, the trick is in finding a provider you can trust and one who has your best financial interests at heart.

“Prioritise repayment of debt and pay it as quickly as possible,” says Cool.

3. Save on specials and plan ahead

Instead of taking out credit, have a plan and be accountable – put a realistic budget together that accounts for your Easter spending and allows you to still save.

“A budget may also include ways on how to cut down on spending, such as using vouchers, looking out for specials on items you may need for Easter, and group discounts on activities or entertainment,” says Mzwinila.

Cool recommends starting a year in advance with an active savings plan – the sooner the better. This enables you to benefit from the wonders of compound interest, earning interest today on the interest you earned yesterday.

With the short nature of this investment period of 12-months, fixed term savings account option is the best solution.

“If you use a notice savings account, check that you will be able to get your money out in time. If you don’t give enough notice, you may be charged a penalty,” Cool adds.

Careful planning can allow you to exercise financial discipline while still having fun and spoiling your loved ones.