The average person cannot go through life without being indebted to a financial institution at some stage.
Be it buying a car, a house, clothes from Edgars or even that new gadget on your credit card, we have all experienced being a debtor to someone else.
Not all debt is bad, and if managed properly it can work for you. Having a good credit rating is important. Having a credit rating in totality? Imperative.
According to Transunion and the statistics released for the first quarter of 2014, consumers could not meet their obligations. This is extremely worrying. Not paying month 2's installment results in the balance outstanding attracting interest, and therefore interest being charged on interest when month 3 isn't paid. Once in this spiral of destruction it is hard to get out.
In my personal opinion, not enough education is provided on the subject of debt and credit. Some understand credit as 'free money' and once the financial services providers see the individual spending (beyond his or her means) they offer MORE credit. I blame the providers. They are giving the individual the spade to dig his or her own credit grave and playing on the consumer's ignorance.
Our domestic worker recently got herself into a difficult situation by running up an almost R5 000 Rand bill at an upmarket clothing store. She was unable to meet the monthly repayments, and when I confronted her about the numerous phone calls from the store, she admitted that she'd gotten herself into trouble. We made a plan to withdraw some funds from a policy we have set up for her retirement to release her from her obligations, but not without explaining the credit concept and how dangerous it can be.
Last month I paid off all of my outstanding debts. I did not have many, but the repayments each month were cutting into my disposable income. I decided to take control of the situation and paid every cent I owed. Wow, what a feeling of relief! My car isn't under a finance lease, but I have considered trading it in and getting something that's a bit more fuel economical (my consumption rivals that of an SUV). Is spending a few thousand more each month to pay off a new car really smarter than just footing my sub R1 000 fuel bill? No. I'd rather not get a new car. Besides, those repayments could go towards our next overseas holiday.
Read up on credit. Educate yourself. There are many credit bureaus in South Africa that are able to give you sound financial advice in order to proactively reduce your debt. Don't be too proud to ask for help.
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