Consumers are advised to borrow money responsibly and wisely and for what is strictly necessary. They should plan in advance how they will repay the loan and ascertain whether they can afford it, says Mpho Ramapala, Acting Manager: Education and Communication at the National Credit Regulator (NCR).
She says it is typical that consumers spend a lot of money during the festive season, celebrating with family, going on holiday and other festive activities and forget to budget for the new year.
“Some consumers don’t usually plan for expenses that they will face in January such as education expenses for children and other important household expenses. It is at this time that consumers seek loans to cover these expenses.”
Ramapala points out that often, at this time, consumers are desperate for financial assistance and may take out loans recklessly. The NCR implores all South Africans who find themselves in this situation to borrow responsibly, and to avoid resorting to unregistered credit providers.
Sometimes the only solution for people who were unable to save for the new year is to take out credit to fund new year expenses. 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 their festive season celebrations, but if they did borrow money it is important to manage their repayments carefully,” said 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.
The Credit Bureau Monitor (CBM) has reported that, for the quarter ending September 2014, of the 22.50 million credit active consumers, 10.05 million (44.7%) have impaired records and are struggling to service their debt.
Ramapala urges consumers to consider all their existing debt, including store and credit cards as well as personal loans and other commitments before they take out a new loan. “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 find themselves short and unable to make monthly repayments is to contact their 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 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 debts 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 (NCA).
* 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 have 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.
* Save some of your income every month.
* 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 will 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 NCR registered credit bureaus.
Issued by NCR