Some 23.9 million South Africans are credit-active, building up a bill of total outstanding consumer credit to the tune of R1,66tn – more than half of which is mortgage debt (52%). The remaining 48% comprises of secured credit agreements, unsecured credit, and developmental and short-term credit.
As at Q1, 2016, 48% of consumers were current on all their accounts, while 12% were one to two months in arrears, 22% three months or more in arrears, and the remaining 18% had either an adverse listing, judgement or admin order against them.
Most people generally hope that by the time they are 40, 50 or 60 – or 70 at the very latest – they would be living with considerably less debt, or even be debt-free.
But the question is: Is becoming debt-free always in your best interest? Certainly, paying off your home and car is a goal worth striving for. But if you manage credit wisely, you can actually make it work for you, according to credit bureau TransUnion.
It is often possible for consumers to take advantage of credit benefits such as the six month’s free credit facility offered by some stores.
Dip into your savings or take the store’s credit?
TransUnion advises consumers to take advantage of the up to 55 day’s interest-free credit available on most credit cards – provided you pay the full amount (not just the minimum amount) owing on the credit card and on time every month. By doing this, your credit card will only cost you the monthly or annual fee.
You have to be extremely disciplined to make credit work for you, and to qualify for credit at the best possible terms, you have to build and maintain a good credit record.
This is where many people make a mistake. They don’t start building a solid credit record early enough; while others, who have spent years, or even decades, maintaining a good record, allow it all to disappear when they eventually pay off all their debts and become debt-free.
Pensioners, for example, who previously had an impeccable credit record, may find it extremely difficult to obtain vehicle financing should their car need replacing. They may also not be able to stand surety for their child or grandchild’s credit application.
TransUnion says everyone should start building a credit record as early as possible and maintain it throughout their life.
How to do credit better
- Apply for and maintain a store card or credit card with a low credit limit
- Try to keep the balance on the card below 35% of the limit
- If you have a credit card, try to pay the full amount owing every month to avoid paying interest
- Ensure you repay the correct amount owing on all your accounts on time and in full every month – do not skip a month with the intention of making up the shortfall next month. This may reflect negatively on your credit report