How to spend wisely over Xmas

It is important to understand the benefits of paying for goods with cash instead of on credit, or instead of taking out a loan.

As consumers, we are constantly being invited to buy today and "pay later". Credit can be a great convenience if used wisely, but the cost of falling into uncontrolled debt outweighs the benefits of our purchases.

Consumers often overextend themselves during the festive season and flood retail stores to purchase goods such as cars, furniture, jewellery and presents. As a consumer, you have the option of buying goods on credit or for cash.

l Paying cash means that a consumer pays upfront for the goods.

There is no interest charged and consumers can also negotiate for a lower price or receive discounts.

l Buying with a cheque. A cheque is a negotiable instrument authorising a specified bank to pay to the cheque holder the amount stipulated thereon.

A cheque stays in the bank for seven days before it can be cleared. Paying with a cheque is considered as paying cash. Some credit grantors do not accept cheque payments because it is not a guarantee that a person has money in the bank.

l When you buy on credit it is a debt. You are invited to buy goods today and pay later. You will be required to later repay the amount you borrowed, the

interest fees and administration charges and

sometimes even the insurance.

Credit comes in many forms:

Credit cards are the most easily obtained types of loan facility. They enable you to buy goods and services or borrow money up to a predetermined limit. Many offer an interest- free period, where you can repay the amount borrowed for purchases during the month without cost. But, you are borrowing money that you have a commitment to repay. If the debt is not repaid in full by the due date, the balance attracts an interest rate that is usually higher than other loans.

Store cards are issued by or on behalf of a store or retail group. Contracts and conditions vary. Some demand minimum monthly payment, others a fixed payment. The store normally charges interest if you do not repay the full amount each month and it often attracts additional fees and charges.

An interest-free loan is only interest free if you clear the loan within the stated time. If not cleared, interest is calculated from the date you purchased the goods. Interest free deals sound good, but they might not be as free as they seem.

l If you borrow money with someone else and they stop paying, you will be responsible for the entire debt. Think carefully about being a guarantor. If the borrower cannot repay the debt, you are required to repay the loan.

Credit reports are tools used by lenders to decide whether they will provide credit to you. Your credit report contains information about your credit history including requests for loans, applications for cellphones, late payments, unpaid debts and any court judgments against you. You can get a free copy of your credit report once a year by asking for it from the credit bureaux.

The comparative costs of buying R5000 worth of goods for cash or on credit or loan are something that should be taken into account. Buying them over 24 months at an interest rate of 30percent will end up costing you R36000.

l When buying on credit:

* A contract should be explained in a language that you understand and all information should be disclosed.

* Credit provider must give you details about fees and charges.

l If things go wrong:

* Keep records, check credit card statements and report discrepancies immediately.

* If you have difficulties repaying, do not ignore the problem. Discuss your options with the lender; you could arrange to pay a minimum amount a month.