HAVING some form of debt is an inevitability for the vast majority of South African consumers.
Credit facilities, whether it’s something as simple as a store card or an overdraft facility, are readily available, and in many cases, very few checks are done into the affordability of these arrangements. That means the responsibility for managing their debts lies very much with the consumer, but unfortunately, this is a skill very few South Africans have. This is illustrated by the fact that of the 19 million active credit holders in South Africa, less than 1.6 percent have requested their credit report from the credit agencies.
So what are the fundamentals of managing debt that South African consumers would do well to learn? Let’s take a look…
- Understanding the difference between good and bad debt
The first lesson to learn is that not all debt is bad. Things like mortgages and student loans can actually help people improve their lives and further their financial position. However, the vast majority of debts are bad. If you’re borrowing money to buy clothes, go on holiday or have an extravagant night out, those are all examples of bad debts. The short-term lender Wonga South Africa has put together a simple resource to help people understand the difference between good and bad debt.
- Only borrow what you can afford to repay
One of the biggest causes of debt problems in South Africa and around the world is consumers who borrow more than they can comfortably afford to repay. Some types of debt are relatively cheap, while others are more expensive. Before borrowing any money you should think very carefully about whether the purchase is one you really need to make. You should then draw up a budget to make sure you can comfortably afford the repayments and shop around to find the cheapest form of debt. These are some of the different types of consumer debt available.
- Request your credit report
Every South African has the right to see the details the credit reference agencies hold about them. Your credit score affects the availability of debt and the price you will pay to borrow, so it’s essential you are aware of the details held on your record. It is also not uncommon for there to be mistakes on your credit record which impact your credit score and these need to be corrected.
Are you struggling with personal debt? Perhaps you’ve managed to solve your debt problems, in which case, how did you do it? Please share your tips with our readers in the comments section.