With Christmas season around the corner, this could only mean one thing: your bank account is going to take a hit. With a long list of presents to buy, here’s how you can keep spending to a minimum so you won’t have to ring in the New Year with debt.
Convenient Loans Make It Easier to Spend
When you know you have a ton of presents to buy for family and friends, it’s very tempting to get a loan and just worry about paying it off at a later date. Such loans include payday loans and the hugely popular AfterPay.
Payday loans are short term loans that usually run for a few weeks, around your next payday. It is easy to apply for one and will only take minutes before you can get your cash. It’s that simple.
Aside from its easy, hassle-free application, payday lenders don’t do credit history checks. Your credit history details how you’ve been spending your money, if you have any pending loans, and such. Based on this information, a lender can decide whether you are financially capable of paying off debt if he were to lend you money. Payday lenders aren’t privy to your credit history.
Payday loans are ideally for those who need cash right away and who are capable of paying the money back by the time their next salary comes. Unfortunately, around 80% of borrowers don’t pay on time; this will incur late fees, perhaps a higher interest rate too. At the end of the day, a person would be paying much more than the amount he initially borrowed.
AfterPay is another popular payment scheme. The idea of “buy now, pay later” is very attractive indeed, especially during Christmas. Like payday loans, AfterPay and other similar platforms don’t check your credit history when you apply, making impulsive spenders vulnerable to such an offer.
Many websites have tie-ups with AfterPay so when you shop online you can simply choose this as a payment option and it will be charged to your account at a later date. But paying later means that there will be fees, and they are usually expensive.
What’s Wrong with Payday Loans & AfterPay
Both loans are favoured by many because it’s easy access to cash you need (or want) on any given day. They don’t perform credit checks so if you have a bad credit history, this will not necessarily impact your ability to use these services.
So what exactly is wrong with them?
There’s nothing wrong with the whole scheme itself, whether it’s buy now, pay later or instant short term loan. What makes these types of loans turn into financial traps is the type of person that gets them.
It all boils down to whether or not the person is financially capable of holding his end of the bargain. If he is aware of the added fees and high interest rates and knows when to pay his debt, then payday loans, AfterPay, or any kind of loan for that matter shouldn’t be a burden to his bank account.
But let’s be real here — most of the people who take out payday loans and those who use AfterPay are usually spending well beyond their means. They end up being in a cycle of continuous spending that lasts for months or even years.
Your credit score can also be affected by AfterPay, as AfterPay can report negative behaviour to credit reporting agencies, so those missed payments, late fees and defaults can all have an impact on your credit score in the long run. To learn more about the impact having a bad credit score can have, click here.
Holiday Spending Tips
If you can help it, you wouldn’t want to begin the new year with debt, but the use of credit cards make shopping much more convenient. There are installment plans attached to different credit cards that entice consumers to buy the latest gadgets or partake in special offers. Making use of these deals shouldn’t be an issue, as long as you know what you are getting into. If you want to be more prepared for Christmas and all the spending it entails, here are some tips:
Make a list (check it twice)
Make a list of people you want to give presents to and what you think would be the best gift for them. This will help you keep things on track and prevent you from overspending. Make a holiday list of the things you need at home too (decorations, food ingredients for Christmas family dinner, etc.)
Set a Budget
Set a maximum amount of money you are willing to spend and stick to it. Instead of using your credit card, withdraw the amount in cash. Seeing your wallet slowly lose its cash content will convince you to stay within your budget as opposed to swiping your card.
Keep track of spending
Whether it’s through an app or good old fashioned pen and paper, keeping track of how much you’ve spent helps you control yourself. Tick off the presents you bought and keep receipts so you know how much you’ve spent so far.
Avoid shopping at the last minute
Shop as early as you can to avoid the holiday rush. Spreading out your spending in a span of several months compared to spending the same amount in a week will feel better.
Take advantage of year-round & holiday sales
Speaking of shopping ahead of time, why not make use of special holiday sales like Black Friday, Cyber Monday and other sale days? Stores and brands slash prices up to 80% off during these days. And it can help make you feel even more relaxed when you’ve got those gift sorted long before Christmas is here.
Try to buy from the same online store
If you’re shopping online, buying gifts from different stores can lead you to end up spending much more on delivery fees. Try to buy most of the presents from just one store, if you can. Or brainstorm all of your gift ideas and see if you can reduce how many different retailers you need to purchase through. You’ll often be surprised at the large ranges some businesses offer.
Do a secret santa
If you come from a large family or group of friends, the stress of buying everyone a gift can take its toll on you and your wallet. Suggest having a secret santa instead, that way everyone is just purchasing the one gift, and usually a spending limit will be implemented, making it super friendly on the wallet. The present will be more well thought out too!
If you want a more personal touch, go for handmade gifts. These are undoubtedly much more affordable than store bought items, plus it’s made by you! Given we’ve spent a lot of time in lockdown in 2020, you’ve probably developed some crafting skills of some sorts, time to put them to use!
Don’t miss payments
In the event that you do use your credit card, avoid missing due dates. Pay on time always so you won’t incur additional charges or have your credit rating be affected.
Spend Wisely All Year Round
Even when the holidays are over, expenses won’t stop. There are other things to buy or spend on and at the end of the day it’s all about how you can learn to discipline yourself and better manage your finances. If you find yourself in a cycle of debt, check out our article about how you can get out of it.