This year, with its tightening economy and rising cost of living, is a year to be more financially responsible than ever, and the best way to begin the new year is on a solid financial footing, says Acting Education and Communication Manager at the National Credit Regulator (NCR), Mpho Ramapala.
Many consumers struggle to afford the annual expenses of the festive season and the new year such as gifts, festive celebrations, student registration fees, school uniforms and textbooks.
For many people who were unable to save for these in 2013, the only solution is to take out credit to fund these unusual expenses. The NCR implores all South Africans who find themselves in that situation to borrow responsibly, and to avoid resorting to unregistered credit providers.
January can be a difficult month to get through, as many people are paid earlier in December and then have to wait longer until their next pay cheque in January, which results in many consumers being financially strained over this period.
“We hope that consumers have avoided the trap of borrowing money to pay for festive season celebrations, but if they did borrow money it is important to manage their repayments carefully,” explains Ramapala.
The Credit Bureau Monitor (CBM) has reported that, for the quarter ending September 2013, of the 20.29 million credit active consumers, 9.76 million have impaired records and are struggling to service their debt.
“During the festive season consumers often over-indulge and spend more than usual, which can add to their debt burden. The NCR’s ‘Spend Wisely/Borrow Wisely’ campaign aims to encourage consumers to manage their debt more responsibly and adopt healthy saving habits to avoid over indebtedness,” continues Ramapala.
This national campaign rolled out by the NCR is focused on instilling healthy borrowing and saving habits among South Africans. In fact, the easiest way to maintain a good credit record is to live within your means, explains Ramapala.
The NCR also encourages consumers to understand their credit agreements. Before consumers sign a credit agreement, they need to understand the cost of credit and the terms and conditions of the credit agreement to ensure they will be able to make the repayments.
Ramapala urges consumers to take into account all debt, including store and credit cards as well as personal loans and other commitments. “Plan to pay off as much debt as possible before taking on more credit. Most importantly honour your credit agreement repayments.”
The message from the NCR for those consumers who do find themselves short and unable to make monthly repayments, is to contact your credit providers and make alternative payment arrangements. It is important to keep credit providers informed in order to avoid compromising your credit record.
Below are some tips to help consumers manage their debts more responsibly and ease into the year:
- Borrow as little money as possible. Borrowing to fund your children’s education or a home loan can be a good thing, but borrowing for consumables, to pay off other debt or to fund luxuries such as holidays or designer clothing, can condemn you to a lifetime of debt. Only borrow for what you really need.
- Plan the repayments before you apply for a credit card, store card, overdraft, personal loan or any form of credit. Also take into consideration the interest and other charges as well as how this will affect your ability to save. Avoid paying over too many months as it will cost you more in the end.
- If there is credit insurance, familiarise yourself with the terms of the insurance to avoid surprises when you most need the insurance.
- Be honest – make sure that you honestly disclose all the information required by the credit provider. Dishonesty may cause you to lose the protection offered by the National Credit Act.
- Create a monthly budget and stick to it – work out how much income your family earns and what your total expenses are each month. Will you be able to pay for your new debt once you’ve covered all your expenses? You should also plan for unexpected costs such as if one of your family members is retrenched.
- Always keep receipts of your payments, as you might need these in the future.
- Start saving consistently – put aside at least 15% of your income every month in a safe investment. Save for your retirement as well.
- Pay your debts on time. Paying late will adversely affect your credit rating and possibly your ability to take out credit in the future. If you think you cannot meet your monthly instalments, call your credit provider immediately and try to re-arrange payments. Do not wait until you skip payments.
- Prioritise your home loan.
- Check your credit report regularly. This way you’ll be able to identify any errors and correct them. Under the NCA you are entitled to one free copy of your credit report each year from each of the 13 registered credit bureaus.
“Ideally consumers should aim to pay off their debt quickly and through regular saving, build up a nest egg to use in emergencies, which will help to reduce their reliance on credit,” concludes Ramapala.
NCR Press Statement