Ho, ho, ouch - Santa’s debt burden

Tauranga Budget Advisory Service manager Diane Bruin.

Another Christmas, another splurge of unbudgeted spending, and more families stretched beyond their financial limits.

'November was our busiest month this year,” says Diane Bruin, manager of the Tauranga Budget Advisory Service which offers help and advice to people struggling with household budgeting, money management and debt. She sees some disturbing new trends.

For example, 'very noticeable” is the number of people with multiple credit cards that they are struggling to service. 'There have been increased insolvency applications,” reveals Diane.

Insolvency is a formal process that allows people to clear debt, but it can have serious consequences – banks may refuse to assist the purchase of a car or house, landlords may be unwilling to rent, an employer may not want to offer a job and service providers may not want to do business.

A payday loan is a small, short-term, expensive unsecured loan fixed to the borrower's next pay cheque.

Diane says the increased cost to rent this year has stretched family budgets and people are applying for short-term top-ups with pay day lending or using credit cards to meet basic costs. 'Unfortunately, the high interest adds to the debt very quickly and what may have started out to be reasonable, isn't.”

The average level of debt for a Tauranga Budget Advisory Service client is $22,300. The largest is $700,000 plus. The highest debts are mortgages, and credit cards come next.

A $2,500 credit card, paying off the minimum amount, will take 15 years to pay off,” says Diane.

It's a simple equation which should serve as warning this Christmas.

'People bring their own pressure at Christmas. Parents feel guilty not being able to afford to buy their children what they want. However, they need to be realistic to avoid a long term financial burden.

'Set your family expectations on what is acceptable considering cost, wants and needs. It may sound boring, however parents will sleep easier knowing that financially, they are better placed for the future.”

The service even ran workshops in Christmas gift making. Participants used recycled items and their own creativity to make gifts and decorations. 'It was a lot of fun,” says Diane, 'and the workshop will be on the schedule again next year.”

There are many financial pitfalls for the unwary. Diane recalls the experience of one family tripped up by casual contracts. 'Some companies close down at Christmas, and if you are a casual you don't get paid.

Being without any income for several weeks has put added pressure on this family already struggling to meet weekly commitments.”

Fortunately, the Budget Advisory Service has been working with the family for six months, so there is support and the burden has been slightly reduced.

'We're also finding more people getting into debt through not reading contracts. They read the fine print only after realising they can't afford to pay and can't get out of the contract.”

The Tauranga Budget Advisory Service offers free, confidential and non-judgmental advice from trained financial mentors. For more information, phone: (07) 578 0969, email: info@tgabudget.org.nz or visit: www.tgabudget.org.nz

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