Most of us know how 'jet lag' feels – like being one of the walking dead after a long-distance flight.
A more serious holiday hangover is coming for thousands of Australians – 'debt lag'. It comes when Christmas, holiday and normal household bills fall due around the same time. Unlike jet lag, 'debt lag' can last months, or even years.
The pressure of Christmas
Christmas is a great time of year, but the lead-up can be stressful. There's pressure to buy friends and family thoughtful gifts, to make Christmas Day memorable and to organise a relaxing summer holiday to recharge your batteries (and maybe your partner's and family's).
Under pressure we can all make bad decisions.
Many of us are so stretched for money that we overreach to fund our Christmas and holidays. The newest enabler Australians are turning to – by the thousands – is the 'buy now, pay later' (BNPL) scheme (such as Afterpay, ZipPay, Openpay, Oxipay or Certegy).
This will be the first Australian Christmas and summer that BNPL services are available for almost anything you can buy to eat, watch or wear from a shopping centre or department store.
And that's just the start.BNPL schemes let you buy everything from Christmas hampers to flights, hotels, Botox, surf lessons and dental work – all without paying a cent up front.
Too many credit options
The credit options available this year are mind-boggling and alarming. I say this because financial counsellors at the National Debt Helpline are already overrun assisting people overindulging on credit that they should never have been given access to.
We're not saying people should avoid BNPL services altogether – used carefully they can help people manage their finances. But we're saying avoid them as a major payment method, and we'd encourage people not to extend beyond their means. It's sadly common for people to fall into debt spirals that are hard to escape – all because they try to buy an enjoyable Christmas and a relaxing holiday.
The risks of day-to-day credit
Payday loans and BNPL services are not intended for day-to-day living and certainly not to make us miserable. Credit generally is designed for building capacity (to assist wealth creation) or when we need to quickly produce cash (e.g. emergencies).
Credit cards have become day-to-day payment options – to many people's detriment, we'd argue. In July, ABC research showed that if a card user made only the minimum repayments on a $2000 card debt, it would take 17 years to repay.
It's not hard to see what happens next if that person adds repayments from a payday loan or several gifts bought with BNPL – especially if directed to their card. Funding too much of your Christmas and/or holiday on any kind of credit, let alone a combination of credit options, is a debt crisis waiting to happen.
Escaping financial quicksand
Financial distress is like quicksand: people battle to meet repayments and pay penalties, so they seek quicker but more expensive solutions to short-term cash flow problems. In our experience, people who turn to payday loans for basic living expenses often take out another, then another. It's also common for our financial counsellors to find that payday lenders sign up borrowers to contracts without properly assessing their ability to repay the debt.
This is a problem with BNPL schemes too – because the schemes don't charge interest per se, they are unregulated and don't always check if you can afford to put dozens of expensive items on their instalment plans. Some let consumers buy up to $30,000 worth of goods and services!
It's little surprise BNPL operators derive around a quarter of their income from late fees – which means they wouldn't be profitable without relying on you missing payments. Let that sink in for a moment…
Targeting the vulnerable
Time and time again we see credit targeted at low-income earners and students: the very people tempted to use it for day-to-day expenses. Research from various sources in 2015 showed that the average income of payday borrowers ($35,702) was less than half the full-time earnings of the average Australian ($75,603).
So – until better regulation is in place – it comes down to this: who will safeguard your financial health if it's not a lenders' priority, or even in their interest?
It comes back to you.
What really has value?
Before you sign up for a payday loan, or use Afterpay or ZipPay for the sixth time, take a deep breath and ask yourself if you really need – or just want – that pair of shoes, swimsuit, ritzy hotel, rental car or that extra gift. Can you really afford it all, especially once the electricity bill arrives in January?
And perhaps pause to think about what you really want out of Christmas and a holiday. For most of us, it's about rest and sharing enjoyable times with family and friends. Bigger price tags and more 'stuff' have little to do with good memories.
DISCLAIMER: This piece was written for choice.com.au by The Financial Rights Legal Centre.