Heading right for a debt trap
Maybe it's time our consumers took Reserve Bank governor Tito Mboweni's consistent reminder that we are heading for a debt trap seriously.
How does one account for having two or more credit cards in his or her wallet and which they find difficult to service? Worse still, having more than one credit card from the same financial institution?
Mboweni stressed this concern again at a conference, jointly hosted by the National Consumer Forum and Absa Bank, to mark Consumer Rights Day last week.
Amid the household debt record high of 73percent of income, Mboweni warned of impending interest rates hikes.
"Just because the Reserve Bank did not increase interest rates at the last monetary committee meeting, there might be those who think that's the end of rate hikes, and start piling up debt again," he warned.
While most of us have incurred some form of debt, the reality of it being important occurs only when it starts shifting from being manageable to becoming unaffordable. This is why you should take it seriously as soon as possible.
Financial experts believe that buying on credit can be part of good financial planning, but it can also lead to a debt trap.
"Using credit wisely and responsibly can make life easier when cash is short, but its ready availability can also lead to overspending," said Ian Wood, financial services executive at Edcon.
He believes indiscriminate spending has an important impact on our lives, health, relationships and jobs.
Unaffordable personal debt levels and the strains that accompany them are known to cause depression, end marriages, tear apart families, impact negatively on your health and sometimes even be the reason for suicide.
Wood said there's a thin line between enjoying credit and trapping yourself in debt.
"It's much easier to stay out than to get out of financial trouble once you are in it."
Do you buy food and other necessities on credit? Do you miss payments on your credit cards thinking you'll just pay double next month? Do you have more cards than you need or can afford? Do you get a different feeling buying on credit than you do with cash?
If you answer "yes" to any of these questions, Wood offers the following tips to help you get and keep your credit situation in good shape:
l Before buying on credit, always ask yourself if you really need the item and whether you couldn't wait to save for it and then pay cash.
l Know your debt and the cost of credit. Work out exactly what fees and interest you are paying off on each debt each month and pay off debts with the highest interest rate first.
l Make your repayments punctually and in full before the due date to avoid paying additional interest or fees.
l Consolidate your debt - check interest rates and fees at your bank. You might find it more cost-effective to borrow enough money from them to pay off all your debts at once before focusing on paying back the bank.
l Be honest with your credit provider. If your job status or salary changes, let them know.
l If you cannot afford the payment for any reason, either write or call your credit provider to explain the reason to work out some method suitable to your needs. And stick to your promises to your credit provider.
l Take debt seriously - remember there are serious interest implications if you miss credit repayments.
l Don't despair. With self- discipline, honesty and careful budgeting, you can escape or avoid the debt trap.