Consumers have been surviving the cost-of-living crisis these past few years by living on credit, but you must do it wisely.
Using credit wisely should be part of your 2025 new year’s resolutions to ensure that your year goes smoothly without any financial bumps that can throw you off course.
“Let’s be frank: credit has a bad reputation,” Cheslyn Jacobs, chief commercial officer at TymeBank, says. “This is mostly due to so many consumers overextending themselves.
“While borrowing money can help individuals and families during tough financial times and to access much-needed assets, over-indebtedness is an all-too-common problem in South Africa. According to the Reserve Bank, South Africans spend 9% of their disposable income servicing debt, while the total household debt amounts to approximately 62% of a family’s income.
“Unfortunately, many South Africans who have no access to credit from banks end up borrowing money from unregulated lenders such as loan sharks, who charge exorbitant fees that can easily lead to financial ruin.”
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Use credit to empower yourself
Jacobs says being clear on the type of credit appropriate for your needs and understanding how to use it smartly is essential. He has these tips to help you use credit to empower and not debilitate yourself:
- Create a new budget: The best way to prepare before applying for and getting credit is to take a close look at your monthly finances and spending patterns. You must know how much you can really afford to borrow (and pay back). Revising your budget will enable you to factor in receiving money through a loan, allocating it properly and making allowance for repayments.
- Know your credit score: Checking your credit score with a reputable credit bureau is vital in understanding whether you will qualify to borrow money and determining what interest you are likely to pay.
- Shop around: Before borrowing money, must shop around for the best deal. Approach several lenders to check the terms they offer you and compare the interest rates you will be charged.
- Spot the red flags: Make sure that you borrow from registered lenders to avoid being scammed or charged excessive rates. If in doubt about a lender, check if the company is registered with the National Credit Regulator (NCR). Avoid companies that demand various upfront fees, such as legal fees, transfer fees, or clearance fees.
- Pay on time: Ensure that you always repay on time and never miss any payments to avoid penalties and a negative credit score. Extra tip: schedule an automatic payment via your bank or set up a monthly reminder.
- Avoid becoming over-indebted: Never borrow more money than you can afford to repay. Credit cards, loans, store cards and overdraft facilities are convenient lines of credit when you need them, but it is important to manage that access carefully. Ideally, you should not be using more than 30% of your available limit regularly.
- Learn more about interest-free payment plans: There are payment options that will not charge you a fee. Buy now, pay later is a type of short-term financing that allows consumers to make purchases and pay for them at a future date. TymeBank’s MoreTyme lets you pay for a third of your purchase at the till point and the rest over the next two months interest free.
- Know your rights: Familiarise yourself with the National Credit Act (NCA), which was created to protect consumers and to enable them to know their rights. When applying to borrow money, ask the credit provider to explain in full all the terms and conditions applicable. Also, read the fine print in detail before signing the contract.
Why it is important to create a budget first
“By creating a budget, knowing your credit score, comparing offers, making timely payments, avoiding over-indebtedness and using credit responsibly, you can build a positive credit history and avoid financial stress. Used wisely, credit can empower you to achieve your financial goals,” Jacobs says.
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