Posted: Thursday, 7th November 2013
Having a credit facility (such as a loan, clothing or cellphone account) is an inevitable part of life for most South Africans.
Maintaining and managing that credit - or debt - is an important part of financial health.
Yet few South Africans recognise that the power to manage their credit lies in their own hands. The concerning fact is that of the 19 million credit active people in the country, less than 1.6% have requested their credit report from the credit bureaus.
As a result, 98.4% of consumers may only get confirmation about the state of the credit health, and become aware of how good - or bad - their credit management is, when they apply for credit.
A credit report reflects each consumer’s credit behaviour and impacts his or her power to get loans and credit. It is a summary of your past and current credit obligations, and how well you have managed these debts.
What can you do if you find yourself with too much debt?
Ignoring letters of demand from angry creditors, juggling your finances so that you only pay the outstanding amount on the most pressing accounts and even worse, borrowing more money from microlenders to pay existing debt or maxing out one credit card to pay another, may only deepen your financial crisis.
Rather, follow these quick tips to lower your debt:
• First, obtain your credit report from one of the national credit bureaus such as TransUnion. You can get your report by logging on to www.mytransunion.co.za or calling 0861 482 482.
• List all your active loans, credit and other account information from your credit report. Make sure to review the report carefully to ensure its accuracy.
• Next, write down your total monthly income.
• List all your monthly expenses. Don’t leave anything out and do not underestimate or write down what you think you could reduce your cellphone bill to - if you try really hard.
• Calculate your monthly budget.
• The next step is to try and reduce your monthly expenses so that you are able to save 10% of your income each month.
• Examine your budget honestly and critically to see where you can realistically reduce your expenses. Decide what are “must haves” and “nice to haves”. Eat out less often; opt for a smaller DStv bouquet or cut out DStv altogether; reduce your expenditure on luxuries.
• Now look for ways to reduce your “must have” monthly expenses. Carpool to save on petrol; conserve water; turn off lights when you leave the room.
• Apply these savings towards paying off your debts.
• Consider paying off any debts with high interest rates first; accounts above 35% of their credit limit; debts that are close to be being paid off; or those with high annual fees.
• Finally, create a payment calendar with the due dates of each debt and the payment amounts - and stick to it.
• Track improvements in your credit standing by registering for credit monitoring at www.mytransunion.co.za.
• Set goals for your debts and do not forget to celebrate - within your means - when you reach a major debt reduction milestone.