Never take more credit than you can afford to pay back. Too much debt can be bad for your cash flow and you may need to borrow more money. The more money you borrow, the more interest you pay. This interest can add up to hundreds of rands every month.
Being responsible with credit means your credit record stays in good shape. We show you why and how to use credit responsibly.
Why is a good credit record important?
- A good credit record means you could qualify for higher loan amounts and lower interest rates. You’re also more likely to be considered for future credit if you use yours responsibly
- You’ll have less stress and sleep better. Lack of sleep can lead to higher levels of anxiety, depression, higher risk of stroke and heart disease as well as impaired memory
- It’s hard to get out of debt if you’ve taken on too much. If you have, it makes it difficult to maintain a clear credit record
- A court may issue a garnishee order against your salary if you can’t repay the loan
- Creditors can repossess your good if you miss any payments
Things to consider and questions to ask
- Do you need the money and what you’ll buy with it, or do you just want it?
- Is it for things that add and grow in value, such as a house or education? Don’t use credit for consumption spending or luxuries (e.g. food, clothing, petrol, holidays)
- Understand the offer and ensure that there are no hidden costs – credit life insurance is the most common hidden cost. Capitec Bank offers retrenchment and death cover for credit 6 months and longer
- Use registered credit providers only. Mashonisas and loan sharks are expensive, illegal and dangerous
- Know your rights in terms of the National Credit Act (NCA)
Keep your credit profile clean
All credit-active South Africans have a credit profile. Keep yours clean with these tips:
- Have a money plan: Work out how much you can repay per month. This should ideally not be more than 10% of your monthly income. Taking credit is a medium- to long-term commitment. Make sure you can afford to pay it off over months or even years
- Shop around: Go to different credit providers and stores and ask about their repayment plans, interest rates and costs
- Save for a deposit: Your monthly repayments will be smaller when you pay a big deposit. Planning and saving for a purchase is better than buying on impulse
- Pay off credit quickly: The longer you take to repay credit, the more interest you pay. If you’re struggling with your repayments ask the credit provider whether you can pay off smaller amounts over a longer period of time. You’ll pay more interest, but you‘ll avoid ruining your credit record
- Consolidate your debt: If you can borrow money at a low interest rate from a bank or registered credit provider, you can pay off all your high-interest accounts. You’ll then have only one monthly amount to pay back
- Stick to your repayment plan: Pay the amount you owe every month to avoid a bad credit record. You will have more creditworthiness when you manage your accounts properly
There are many benefits to managing your credit wisely. If you must borrow money, go to a registered credit provider you can trust. Find out which one has the lowest credit interest rates and the lowest banking fees.
It takes discipline to stick to your budget and repayment plan. If you do, you will pay off your debt over time and protect your credit record. Remember, a good credit record could even help give you access to credit when you need money in an emergency situation.