christmasUnfortunately debt is a reality. Most people have accrued debt throughout their lives because it’s often the only way to afford the necessities. For instance, most people have car debt because few have the funds to purchase a car out of pocket. Even if your parents assisted you with a deposit for your car, you’re still stuck paying the installments. And, with the festive season around the corner your debt is likely to grow. There’s a lot of pressure to spend, everyone needs a gift. Yes, even your estranged, eccentric cousin who decided this year they’d crash your Christmas fun. However, is it okay to spend money you don’t have on Christmas gifts and festivities? The best way to figure this out is to understand the difference between good debt (yes, there is such a thing) and bad debt. Good debt makes you look pretty good Good debt gives you a good credit rating and you need a credit rating in order to secure a fruitful financial future. The only way to acquire a good credit rating is to get yourself into debt and then out of it again. This will reflect positively when banks and financial institutions consider you for finance. For instance, paying back your student loan is good debt. It might take you a while to clear it but in South Africa in particular, education is the key to success. Similarly, although only a reality later in life, property is considered good debt. The returns on your investment property can be substantial if you wait it out a couple of years and sell at the right time or you can garner an income through renting out your property and using that to pay the bond. With all of that in mind, even good debt is a risky game to play. You must make sure you can cover your repayments and educate yourself properly before deciding to go ahead with purposefully placing yourself in debt. Bad debt can suck the life out of you In the most simple terms, bad debt is that which doesn’t generate any income, immediate or long term. Bad debt is unfortunately commonplace amongst young adults. Your retail accounts that you used to purchase those new Nikes? That is bad debt. Also, previously mentioned vehicle asset finance solutions is the type of debt that most people make use of but your car is a depreciating asset. It loses value the minute it’s driven out of the dealership. It’s wise to try and have that debt cleared up as soon as possible. As soon as you have a job you should look to pumping more money into your car repayments if possible. Of course, having no debt is your best bet. However, when you’re a student it can be very difficult to survive without. Most of the working world can’t afford to live without accruing debt. If you’re considering your budget for the festive season and you don’t want to land in an incredible amount of debt that’s going to take forever to pay off then start being really clever about your gifting activities. If extended family are coming to stay why not suggest a Secret Santa gift swapping game where you can set the cost at an affordable amount? Afterall, gift-giving is not about spending an exorbitant amount of money but rather a token or gesture just to say “happy holidays”.