Borrowing money recklessly to finance luxuries can trap consumers in a vicious cycle of debt for years. The beginning of the year is an ideal time to improve the way we manage our personal finances. Steering clear of debt is not as difficult or overwhelming as it often seems, even during these hard financial times.
We have put together some handy tips to guide you as you embark on the journey to improve your personal financial management in 2018:
- Borrow as little money as possible – Borrowing to fund your children’s education or to buy a house can be a good thing. But borrowing for consumables—such as groceries, a holiday 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, a clothing card, a bank overdraft, a personal loan or any form of credit. Also take into consideration charges such as interest rates as they will negatively affect your ability to save. Avoid stretching the repayment over too many months as that will cost you more in the end.
- Signing – Never sign a blank credit agreement as you will not have control over other information that may be added to the document after you have signed it.
- Card retention – Never leave your identity document, bank card, SASSA card or PIN with the credit provider.
- Always keep receipts of your transactions as you might need them in future for redress
- Cooling-off period – In terms of the National Credit Act, a cooling-off period only applies to credit agreements signed at the premises other than that of the credit provider. The cooling-off period, during which you may return the goods, is valid for five working days. Credit agreements are often signed at the credit provider’s premises. So, don’t sign until you are sure.
- Credit insurance – It is advisable to take out credit insurance. If there is one, please familiarise yourself with the terms of the insurance to avoid surprises when you most need it.
- 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 service your new debt once you’ve covered all your expenses? You should also plan for unexpected costs, such as the retrenchment of a family member. Always keep receipts of your payments as you might need them 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 or failing to pay the full instalment will adversely affect your credit rating and possibly your ability to take out credit in the future. If you think you will not meet your monthly instalments, contact your credit provider immediately and try to re-arrange payments. Do not wait until you skip payments.
- Prioritise your home loan – You don’t want to lose your home.
- Check your credit report regularly – This way you’ll be able to identify any errors and correct them. Under the National Credit Act, a registered credit bureau must provide you with one free copy of your credit report each year. Additional copies come at a cost.
Be wise and make borrowing wisely one of your 2018 resolutions.
For more information and advice:
Gauteng Office of Consumer Affairs
Tel: (011) 355 8006