It is that time of the year where many people make new years resolutions from losing weight, cutting down on carbs, limiting alcohol intake, saving money, letting go of toxic relationships, becoming a better person – the ‘fresh start’ list goes on.
The Credit Ombud, Mr. Nicky Lala Mohan challenges South Africans to go on a credit diet. Financial health is one of the most important things in a person’s overall wellbeing. Many consumers (almost 10 million according to the NCR Credit Bureau Monitor) are credit overweight and need to go on a credit diet as soon as possible. “This is not a quick fix diet but a lifestyle change that will require discipline,” adds Lala Mohan. For some credit overweight consumers, credit weight loss may happen quicker while it may take longer for the credit obese consumers.
There are many factors that contribute to the unhealthy credit lifestyles of consumers – namely:
- Instant gratification – people who refuse to wait for what they want until they have saved enough for it. (I want it and I want it now!)
- Over indulgence – taking out credit even if there is no need, but simply responding to luring adverts
- Lack of credit knowledge – not understanding the true cost of credit, the interests, the fees and the penalties of late or non-payments
- Keeping up with the Khumalo’s and the Jone’s – some consumers take out credit based on what their peers have and feel the need to keep up with them
- Unforeseen circumstances – job loss, emergencies where consumers have not made provision
To get you started, the Credit Ombud gives consumers the credit diet plan to ensure financial health:
- Avoid the ‘you qualify for’ or ‘you have been pre-approved’ temptations – It can be very tempting when you are told that there is money easily available for you to take. Many consumers usually fall for this trap and end up having unplanned debt, resulting in unplanned monthly instalments and interests. This also goes for unplanned fixed contracts like gyms as the cancellation fees, should you wish to cancel before the term ends, are quite high.
- Clean up your credit act before it haunts you – Having a bad credit record is something that can sometimes put your life on hold. Consumers sometimes take for granted a simple thing such as paying an account on time. It is important to always pay your debt on time, every month and pay the full amount. If you pay late, skip payments or short pay, this information is reported to the credit bureaus and reflects as arrears on your credit report. A bad credit report can come between you and your dream job as some employers may check your credit status, depending on the type of job you are applying for.
- Pay it up and cut it up – Have a plan to pay off your debt – whether you start with the smallest and pay it up, or you start with the debt that attracts high interests – just have a plan! Once the debt has been paid up, close it! Cut up the cards! Consumers find themselves paying off debt, but because the money or goods are available for the taking, they fall back into the debt.
- Just because the Khumalo’s and the Jone’s have it, does not mean you should have it too – Always ask yourself why you are purchasing something on credit. Your reasons will give you an indication of whether you need it or just want it.
- Learn to say these three phrases: ‘no, I cannot afford, it’s not in my budget’ – Don’t over commit yourself to family or friends should they be in need of your assistance. Be clear on what you can afford or how far you can go.
- Bring the ‘too much month at the end of the money’ habit to an end – How much percentage of your income goes towards servicing debt? How long after receiving your salary does your money run out? These are critical questions consumers need to ask themselves in order to not run short of money before the next pay date as this results in consumers taking out short term loans. Cut out a few luxuries and you will start seeing a difference. Little things also make a difference, like; carrying lunch instead of buying take-aways, eating at home before going to shopping centers, joining a lift club as a form of transport, etc.
- Cash is king – Saving for a purchase, where possible, is always a good option as you save on the interests and fees. It is key to remember that while you owe on it you don’t own it.
SOURCE: CREDIT OMBUD