The holiday season often results in a spike in spending, which, depending on how much of the festive fun is financed by credit, can put significant long-term strain on our already tight budgets. However, there are ways to spend smartly and responsibly with credit cards over this time, while using them to your financial advantage.
According to Tumelo Ramugondo, head of credit card at Standard Bank, South African consumers are facing reduced levels of disposable income and difficult economic conditions. These include consistently high inflation and interest rates that will likely burden households into 2024.
"January will turn into a worry if you overspend in December, draw from savings, or incur more debt. As a result, we must exercise caution and discipline, especially when using our credit cards, to avoid overspending during the December festivities and suffering financial strain in January and beyond," he advises.
Fortunately, there are ways for consumers to enjoy the festive season, while reaping the full benefits of credit cards. This could mean taking advantage of interest-free payment periods, using your credit account as a transactional account, and sticking to a budget to avoid big or impulse purchases.
All the benefits, none of the credit
While many consumers are expected to use debit or cheque accounts to make festive season purchases, Ramugondo advises transferring available funds to credit cards instead. This enables consumers to profit from the benefits and have their interest payment reset and lowered.
Another benefit credit cards offer is the chance for customers to buy items within the 55-day interest-free period. "If I repay whatever I spend on the card within that period, when my next salary lands, I won't have to pay any interest. You can take advantage of the benefits and get away with not having to pay interest if you can keep up this pattern,” Ramugondo explains.
"It's crucial to keep in mind that the amount transferred to your credit card will significantly lower the interest due, even if it doesn't completely cover the outstanding balance. And, with the money you would have been spending on interest on the balance, if you continue transferring to the card, spending within the 55 days, and then transferring again, you might be able to pay off the remaining amount over time."
Using credit cards for transactions, South Africans can accrue additional rewards points over the holiday period that can then be redeemed in January. This can help reduce the financial burden of expenses that crop up in the new year.
‘Ke Dezemba’ on a budget
Ramugondo suggests creating a ‘Ke Dezemba’ budget to avoid overspending on your credit card. "Look at the money you have available and set up a budget for different categories of spending, like entertainment or groceries. Let this dictate your activities and keep a close eye on how much you're spending in each category. This budget must also take into account your January 2024 debit orders."
With a budget in place, consumers can avoid getting sucked into a shopping and celebration frenzy. Consumers can also compile a gift list before hitting the shops and swiping their credit cards. "Of course, it can be challenging to resist temptation or say no, particularly in the midst of hectic and stressful situations. However, given where we're all at financially, this is the time to resist impulse buys and stick to your budget.”
Ramugondo concludes: “If you feel any pressure in social situations, keep in mind that it's perfectly acceptable to say ‘No, it's not part of my budget.’ Hopefully, considering the pressures of the current economic environment, most people will understand.”
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