Holidays can be a very taxing time for those people with low incomes or minimum disposable income. Marketers begin the festive hype months before the actual holiday and, despite their best intentions, far too may people are drawn into the ever-spiralling credit abyss that results when expectations far outweigh income.



A lot of people depend on credit cards or personal loans to offset the cost of participating in the spirit of giving, yet few actually take the time to totally assess just exactly how much a loan is going to cost or how long it will take to actually repay it.

Interest rates are on the rise with the prime rate escalating to its highest level for the past six years. This is not good news for borrowers who obtain loans with fluctuating interest rates. If you absolutely have to get a loan to cover your holiday costs, make sure you can negotiate for one that has a locked-in interest rate. The most effective way to achieve this is to shop around for the best rate with a payment plan that won't restrict your ability for repayment.

There are many different types of loans available and you should be aware of the implications and responsibilities of each one before you sign on the dotted line. Some of the more common credit types are:

- Revolving (A line of credit extended to customers who may use it as often as desired up to a certain dollar limit),

- Charge (No pre-set spending limit, however, the user will be required to repay any balance in full each month) and

- Installments (goods are supplied and payments made by the purchaser at a pre-determined date in installments over a period of time).

Another consideration should be the interest rate as it is applied to the loan. Your research should clearly define the following:

- Interest Rate: By far the most important consideration when borrowing money, interest rates can be calculated in a myriad of different ways. You should be aware of the costs involved in the various methods of interest application on your loan. Obviously you will want to secure the lowest interest rate possible, yet you should be aware of determining factors like penalties for early repayment, mandatory payment protection insurance and other charges add to the cost of your loan.

- Term of Loan: Generally the shorter the term, the more advantageous it is to the borrower. Longer terms translate into more interest charges and higher costs to you.

- Annual Percentage Rate (APR): APR is basically the cost of credit as a yearly rate and takes into consideration the total amount financed, the finance charges and the term of the loan. An APR does not usually coincide with the posted interest rate.

The bottom line for all credit-based transactions should be that credit is good when it is used to enhance your lifestyle as opposed to being a burden that can ultimately destroy your peace of mind and your credit score.

Always try to stay within your means when obtaining credit. Loans should be set up with repayment plans that are geared to your income and your ability to pay. Consumers should always take a step back before they succumb to impulse buying. Use common sense every time you are tempted to jump on the "buy now and pay later" merry-go-round of credit debt.