They say the best things in life are free but according to the latest reports from the National Credit Regulations (NCR), this seems to be the furthest thing from the truth. Being overindebted is a worldwide epidemic, but at the centre of this financial abyss is South Africa coming in at number one of the worlds biggest borrowers. South Africans are more in debt than ever before with over 11 million consumers with accounts in rears. South Africa’s financial situation isn’t subject to one class, race, age or gender but a problem that affects all people. There are many contributing factors to South Africa’s rapid debt problem, from personal loans at 94% to store cards at 76% but mismanaged credit card use is at an all-time high of 84%.
Ah, the credit card, a magic little card of freedom with unlimited possibilities. Although this little card may seem unassuming, its power and ability to upset the way we live our lives is extraordinary. Having a credit card may put the security of our financial future at risk because we more often than not the lack self-control needed to use a credit card responsibly and end up overspending. In hopes to take back control of our finances, improve our credit rating or to simply avoid and protect our financial future we have curated a list of the golden rules for using a credit card.
Don’t Buy What You Can’t Afford.
Many people today live ‘in the now’ and well that may be a good idea for our sense of self it’s not for our bank accounts. It’s essential not to fall into the trap of living beyond our means. If we can’t afford an item now, we probably won’t be able to afford it later. We need to reevaluate our lifestyles and ensure we’re living within our salary reality – so that we’re able to put a little money away for a rainy day.
*side note: Cape Town may currently be in a drought (see how to save water and money at the same time), but despite what you may think rainy days are inevitable and it’s better to be prepared than scared.
‘I’ve Got Bill’s I Gotta to Pay’
There is a huge disconnect for many of us South Africans between our purchases and actually paying for them. It’s almost as if this impulse buying was done in the third person because we continue to spend without consequence. We tend to forget that we are the ones that have to pay back our credit card purchases – with interest, and if we default on our repayments we are sure to be smacked with a horrible credit rating and even higher interest rates. These increased interest rates make that 20% we got from that sale item we had to have obsolete. Save yourself the small penalties and pay your bills on time – whilst bridging the gap between our purchases and payments.
The Limit Exist
So many of us are under the impression that a high credit limit is the same as a high account balance – it’s not. In fact, it’s quite the opposite. If until now you have been good at managing your credit repayments credit providers will reward you with a higher credit limit. This limit increase does not solicit spending it all at once. In fact, if you spend your entire credit limit you set yourself up as a ‘high-risk’ borrower for making irresponsible financial choices. This may negatively impact your interest rates as well as your risk evaluation. Let your bank balance be the driving force behind your purchases.
Credit cards are not designed for cash withdraws, while the card is certainly able it’s not advisable, in fact, it is a feature of the credit card that should be revoked – due to its high-interest rate penalties. Paying high-interest rates is never an easy pill to swallow but drawing cash from your credit card will leave you with twice the interest rate at about 25%; once as a penalty for the actual withdrawal and again once on the amount, after it had been drawn.
Let us at Save Money put you back in control of your finances and money back into your back pocket.