Festive shopping discounts galore, but beware, dangers lurk! Here’s how to avoid debt traps

By: | Published: September 8, 2017 2:10 PM

Festivities not only bring in celebrations and fun, but they also bring along expenses that can hurt pockets. Here are some tips to avoid a debt trap this festive season.

Festive Shopping, festive offers, avoid debt trap, festive season, Don’t Splurge, Plan Your Finances , Pay Off Credit Card Bills Any debt becomes a trap when you undertake multiple loans and are unable to pay it because of limited source of income.

Festivities not only bring in celebrations and fun, but they also bring along expenses that can hurt pockets. It is that time of the year when we want to shop to fulfil our needs, and buy gifts for our loved ones. Many people also plan their big-ticket shopping during this period as it is considered auspicious. In order to tap this season, banks and retailers come up with various offers and discounts to boost sales. The innumerable offers make us an impulsive buyer and we fall for things which are not our necessity. It is, thus, important to remain careful about shopping and not spend beyond your paying capacity.

The concept of debt arises when we borrow money from banks and financial institutions to make up for the lack of funds. Any debt becomes a trap when you undertake multiple loans and are unable to pay it because of limited source of income. Excessive usage of credit card also makes you prone to debt as we often jump the line and splurge.

Though festivals involve making purchases, you should not fall a victim to debt trap. Here are some tips to avoid a debt trap this festive season:

Don’t Splurge
Plan your finances and buy a product only if it is a complete necessity. Festivals should not be an excuse to buy a new high-end mobile phone when your older one is working absolutely fine.

Plan Your Finances
It is always advisable to plan your finances before going for any kind of big ticket shopping. It should be done taking into account your budget and the significance of that shopping. In case of home or vehicle buying, one has to resort to loans without disturbing the savings for down payment. Even if taking a loan is unavoidable, try to keep it minimum as this will help you have low and affordable EMI payments, which would lower the chances of a default. This would also help you by saving on the interest payouts. You should always take into account the EMI payouts and match them to your affordability while taking a loan. It would also be wise to have a spending budget in place, especially during festivals.

Do Careful Shopping During The Sale Season
Sellers often dish out attractive discounts when the festival season starts. The aim is to attract more and more customers. Sale season often results in binge buying and you end up buying stuff, which is not a necessity. Reduced prices should not be the only reason to get into a shopping mode. So, try and avoid loosening your purse strings during a sale.

Pay Off Your Credit Card Bills Completely
Your credit card allows you to carry forward your outstanding balances if you pay the Minimum Amount Due (MAD) every month. As tempting as it sounds, there is a catch. You are charged an interest on the carried forward credit. The interest rates are substantial and result in an inflated bill. So, avoid part payment of your credit card bills. Pay the bills in full so that you can save on unnecessary interest charges.

Spare A Thought For Your Credit Score
Though this tip is a purely psychological one, it works. A debt trap is not only bad for your finances, it is bad for your credit score too. Too many unpaid loans and defaults hamper your credit score. So, think about impairing your credit score and how it would jeopardize your loan taking capacity in future.

Everyone likes to splurge during the festival season. You can too if such splurging doesn’t lead you to a debt trap. A debt trap is a malicious financial crisis which can even lead to bankruptcy. So, enjoy the festive season, shop to your heart’s content but only if your finances allow. Don’t take on too many loans.

(The writer is CEO, BankBazaar.com)

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