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18.12.2013 Avoid the debt trap this Christmas 18.12.2013

Avoid the debt trap this Christmas

Will she still be smiling when the credit card bill arrives?

Photo: Shutterstock

(CS) Families in Luxembourg spend an average of 825 euros during the festive season and many shops tempt Santa's helpers with incredible offers in the run-up to Christmas; but, budget counsellors warn of the dangers of overspending.

Even if you generally don't feel the pinch of the economic crisis this Christmas, drawing up a budget for your festive spending can only be beneficial, recommends Christian Schumacher of the Ligue Médico-Sociale's debt information and counselling service, especially under the “psychological pressure” to buy something special and meaningful.

There is a habit to not count the pennies around Christmas, Schumacher said, leading many towards the temptation of taking up a credit card with a shop or opting for payment by instalments, two classic “traps.”.

Offers too good to be true

Customers often end up paying more at the bottom line by signing up for a payment plan, Schumacher said, as well as committing for the long-term to a monthly sum, which may sound affordable at the time of purchase but can become a burden over the coming months or even years.

Susana Canaria, debt counsellor at Inter-Actions in Esch/Alzette, particularly warned of signing up for a credit card in store, with customers often unaware that they are signing a contract with a foreign bank.

Most stores in Luxembourg operate with Belgian credit institutes, Canaria said, which not only carry a tough stance in case of late payments, but also tempt customers to spend even more with higher credit limits, while often also applying higher interest rates.

Both counsellors strongly recommend thinking twice before spending more than you have on your bank account, as well as carefully reading and checking the conditions of any special offers. What sounds too good to be true usually is, they said.

Costs versus benefits

But even your regular credit card should be used responsibly, Schumacher said, who describes paying with the piece of plastic as an “abstract” process. “No matter what sum, it's always the same process,” he said, “whereas when you hold the money in your hand, you notice the difference and might think twice about it.”

On the whole, Schumacher recommends reviewing the value of what you buy vs how long you're going to have to pay for it. If you buy a car with a three-year loan, for example, you'll be able to use the car for a lot longer. Meanwhile, the same cannot be said about taking on debt to pay for a winter vacation.

No-one plans to be over-indebted Schumacher said, “but life can be cruel,” he added, saying that many of those seeking counselling suffered personal tragedies, illnesses or became unemployed unexpectedly with loans to pay back and costs to cover. The Ligue Médico-Sociale alone in 2012 helped 259 people for over-indebtedness.

So, in the spirit of Christmas, why not take a time-out from the race for the perfect present?