Struggling to find a gift for your loved one? Help them with their debt

The holiday season is upon us and rather than being excited about the festivities that lie ahead, you may be fretting about what to get your loved ones.

However, have you considered paying off some of their debt as a gift this year? We have a look at how much you should consider contributing, and what kinds of debt you should consider addressing.  

Tip: If your loved one is in deep trouble when it comes to debt, have them look up debt counselling.

How much debt should you settle?

The amount of debt that you offer to settle will depend entirely on your own financial position, as well as how much you’re comfortable gifting.

If you’re fortunate enough to have received a bonus at the end of the year, you could use this towards settling both your and their debt. 

It’s wise to first settle some of your own debt – if you have any – and then to consider whether you’re in the financial position to gift some to your loved one.

If you didn’t receive a bonus this year, you can still spoil your loved ones by contributing towards their debt rather than simply buying them something they may not need.  There are two ways in which you can assist them with their debt:

1. Offer to pay a lumpsum towards their chosen debt
2. Offer to pay a monthly contribution for a set period of time

When you gift this to your loved one, it’s best not to contact their creditors and try to settle it on their behalf. Even a loved one’s finances can be a personal matter, and they may want to have a choice.

Sit down and draw up a budget for yourself to establish how much you can contribute, and then write your loved one a card explaining your intention to assist with their debt, and which account you’d like to address.

What kind of debt can you help settle?

The kind of debt you choose to help settle will depend on the kind of debt your loved one has.

In a press release, Jaco Prinsloo, certified financial planner at Alexander Forbes, points out that you should pay off the debt with the highest interest rate, such as a credit card or store account.

If you’re not sure which of your loved one’s accounts hold the highest interest rate, you can always rather specify that you’d like to contribute towards the account that fits this bill.

This debt should be settled first because, in the long run, your loved one will benefit most from a greater reduction of interest.

Choosing a debt that’s linked to an asset

If you’d like your gift to be linked to a physical asset, vehicle finance or a home loan would be ideal options.

“A home loan can feel like a huge burden because it’s such a big debt that most of us have to carry. With most home loans in place for 20 years or more, it’s truly a major commitment,” says BetterBond.

“So, being able to pay it off in a shorter time is something very meaningful. This year, help out a friend or family member by gifting them something worthwhile: deposit whatever amount you would have spent on a Christmas or end-of-year present into their bond,” explains BetterBond.

They point out that your contribution will immediately reduce the capital amount of the loan, and so you’ll be helping them cut years off the repayment period of the loan.

If you’re considering a home loan for yourself, get a quote here.