Most South Africans (73%) run out of money early in the year and end up living on credit to get by, setting the trend for a perpetuating cycle of debt. This is a very dangerous place to be, especially when over 41% of the country’s consumers currently experience tremendous financial pressure, struggle to make ends meet and live on credit to afford their debt and living expenses.
“The reality is that most South Africans spend 75% of their disposable income on debt and tend to take care of living costs such as groceries with their store or credit cards, which just adds to the debt spiral,” says Neil Roets, CEO of Debt Rescue, South Africa’s leading debt counselling company. “The Covid-19 economic meltdown, along with rocketing fuel and electricity prices has pushed South Africans into a corner, where living on credit seems to be the only solution,’’ he cautions.
While self-discipline is key to managing personal credit, understanding how to make different types of credit work for you, can arrest the debt spiral and turn things around, placing you, the consumer, in control of your finances.
Roets offers this advice to those who want to better understand the benefits of their credit or store card, and how to manage other credit options effectively.
Good Credit Management
Look out for interest-free credit options or rewards for good credit management. Most reputable financial services companies offer insurance linked to their credit products, including loss of income, that protect you against unforeseen circumstances. A reputable card product can be a lifeline during financially trying times, if you manage your credit responsibly.
Build a positive credit record
The first step towards making credit work for you is to build a positive credit record, as this can help you reach your goals by potentially lowering costs for borrowing money.
To increase your credit score there are a few things you can do, such as:
– ensuring payments are made on time (or early) each month
– try to pay more than the minimum
– don’t apply for credit too often, as each application can potentially affect your credit score
– ensure your service agreements, such as cell phones and insurance are also paid on time each month.
Store cards may seem attractive but they are also addictive. It may seem easy to buy now and pay later but you will pay exorbitant interest rates later down the line. It’s also easy to put purchases on your card, especially when you have run out of cash. Get into the habit of only buying on credit when it’s absolutely necessary.
Make good credit decisions
Not all credit is bad. If you borrow money from a bank to finance your education or put a deposit down on your house, that is wise, as these two items are assets which will yield a return later on. If you borrow money to pay for a holiday, that is ill advised as, whilst you’ll create incredible memories, you’ll be poorer for it financially down the line. If you intend using credit to build your credit record, be very diligent about paying it off as quickly as possible.
Take it one step further
There are great resources that are readily available to support those who are serious about making their credit – and money – work for them, while they travel the road to financial freedom. Debt Rescue recommends investing in books like ‘The Total Money Makeover’ by Dave Ramsey and ‘Manage your Money Wisely to Create Wealth’ by local author Arnold Singh. Both offer hope and sound, practical advice, especially Singh’s chapter on ‘How to manage Debt’ which includes a bibliography of respected website references for South African consumers, including debtrescue.co.za – which can be used as a blueprint to reach personal financial freedom.
Budget, budget, budget
Never has this been more important. With the impact of items such as fuel price increases and electricity hikes, it is necessary to know exactly what is going on in your personal finances. The best place to start is with a budget. Draw up a simple spreadsheet showing income and expenditure. Seeing it laid out in black and white, gives you the full picture of where there are opportunities to make changes.
‘’Be careful with your finances and seek help if you are unable to manage your current debt repayments,’’ says Roets. He advocates for consumers to consider all their options, including consulting with a registered debt counsellor who can help. “This has been a very successful solution for thousands of consumers who are plagued by over-indebtedness,” he says.
