Isaac Moledi

Isaac Moledi

Access to credit should not be seen as an open invitation for frivolous spending, cautions 1st for Women Insurance Brokers director Robyn Farrell.

Farrell says having access to credit is undoubtedly a key to personal advancement and empowerment. So, if you have a credit facility, treat it with care, she cautions.

"Although credit providers, such as retail clothing and furniture stores, do an assessment to determine what kind of credit facility you can afford, only you know if you can really afford it or not.

"So, if an overzealous credit provider offers you a credit facility of R20000 when you know you can't actually afford to pay back that type of money, it is up to you to make sure that you don't over- spend and that you are able to afford the monthly repayments," warns Farrell.

She says a recent study showing that 21 percent of women in South Africa who have a retail or store card with a credit facility don't earn any income, is alarming. "This just goes to show that despite the intent and purpose of the new National Credit Act to prevent reckless lending by credit providers, people are still able to gain access to credit that they actually can't afford.

"And sadly, people with limited resources are the most vulnerable because they are more pliable and open to 'easy' credit," says Farrell.

Farrell, however, points out that it's not only those with limited resources that need to err on the side of caution when it comes to spending on credit because even more affluent people who earn decent salaries run the risk of getting in over their heads.

"The ready availability of credit facilities offered by retailers can easily lead to over-spending. Don't be blind-sided by the fact that you have access to thousands of rands of credit, because even if you have a credit provider's vote of confidence that you can afford it, it doesn't mean you actually can."

Farrell's advise is to "tread very carefully and never, ever spend to the maximum unless you have done the sums and are confident that you can afford the monthly instalments".

It also goes without saying that you should never exceed the credit limit, particularly if you do not have prior authorisation from the credit provider.

"Never see credit offered to you as an open invitation to spend wildly. You will end up having to pay back every cent with interest, so always plan before you buy anything.

She says when you utilise your credit facility or use a retail card to purchase goods, make sure that you make the full repayments punctually to avoid paying additional interest or fees.

Remember, there are serious implications if you miss credit repayments. Each missed payment pushes up the interest and pushes you towards a bad credit record, making it difficult to get credit in the future, she advises.

She says anyone who buys on credit must know and understand the costs and the long-term financial implications associated with doing so. "Few things in life are free and credit is not one of them. While it can open up opportunities to buy things you would otherwise be unable to afford, credit can be dangerous if it is not used wisely."