Nicolette Dirk, finance writer, Justmoney.co.za
Acting education and communication manager at the National Credit Regulator (NCR), Mpho Ramapala, has called on consumers to be more financially responsible than ever this year.
This warning follows the release of the Credit Bureau Monitor (CBM) figures, which show that for the quarter ending September 2013 9.76 million credit active consumers have impaired records and are struggling to service their debt.
“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,” said Ramapala.
However, figures have revealed that consumers have not heeded the warnings. Dave Mohr, chief investment strategist for Old Mutual Wealth referred to the Consumer Credit Market Reports by the National Credit Regulator (NCR), which revealed a spike in new credit grants leading up to and during the holiday period. The total value of new credit granted during the fourth quarter of 2012 increased by 9.21% (quarter-on-quarter).
“This highlights how consumers ramp up borrowing ahead of the festive season. It also means that consumers are starting the year on the back foot. We witnessed the same thing in previous years,” said Mohr.
Clean up your finances
The NCR advised consumers, who find themselves in difficult financial situations, to borrow responsibly, and to avoid resorting to unregistered credit providers.
“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,” said Ramapala.
He added that the national campaign rolled out by the NCR is focused on instilling healthy borrowing and saving habits among South Africans.
Understand all terms and conditions
The NCR also encouraged consumers to understand their credit agreements. Before you sign a credit agreement, understand the cost of credit and the terms and conditions of the credit agreement to ensure you will be able to make the repayments.
Ramapala urged 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,” he said.
The NCR provided the following tips to you help you manage your debt in 2014:
• 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.
• 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.
• Start saving consistently - put aside at least 15% of your income every month in a safe investment. Save for your retirement as well.
• 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,” said Ramapala.