Smart moves to managing your credit responsibly ahead of Black Friday and the festive season

 

As a result of high inflation, interest rate hikes and the increase in food prices, South Africans are feeling the pinch financially.

Due to financial pressures, many people are driven to taking on credit to get through tough times. According to the 2022 Q3 Eighty20/XDS Credit Stress Report released in December last year, 60% of middle-income salaries go towards servicing credit accounts.

The most well-known rule in personal finance is to live within your means, however with so many South Africans living from paycheque to paycheque, many are relying on credit facilities to help cover their expenses. This is especially true over the festive season when many households incur extra expenses.

“It is important that individuals manage their credit responsibly, as it impacts their long-term financial future,” says James Williams, Head of Marketing for Wonga. “Taking the necessary steps to meet your credit obligations can ultimately pave the way towards successfully meeting your financial goals.”

“Having access to credit requires the responsibility of being financially literate in order to be in control of your money,” he continues. “Before entering into a credit arrangement, one also has to be honest with themselves and be realistic about what they can afford.”

Williams shares five ways that enable one to manage debt more responsibly:

 

1.     Build a budget and stick to it

A realistic budget will give you a clear indication of what your expenses and income are. Make a habit of analysing your bank statement and highlighting the unnecessary items you spend on. This will increase your awareness about your spending patterns and affordability.

 

2.     Pay your bills on time

This will save you from a bad credit rating and stress from additional costs due to missed payments. Keeping a healthy credit profile enables you to borrow money when you need it most, and help you access lower interest rates  when buying high value items such as your dream home or a car.

 

3.     Know how much you owe and who you owe 

Determine exactly how much debt you owe, and to whom. Keep an up-to-date list of all your debts, including creditors, total amounts, monthly repayments and deadlines. Some debts are more expensive than others, so target the debt that carries the highest interest rate first.

 

4.     Curb impulsive spending

Understand your triggers for impulsive spending and devise a strategy to avoid them. For example, set aside a grocery budget with a strict list to stop you from spending on things you did not budget for. You can also set an amount to spoil yourself with the luxuries you enjoy to reward yourself for sticking to your financial goals and meeting them.

 

5.     Avoid over-indebtedness 

With all forms of credit, make sure that you only borrow what you really need. Focus your credit spending on things that will benefit you in the long term, such as renovating your home or furthering your studies. It is the type of debt that builds wealth, leaving you better off than you were.

“To determine whether your credit load is more than you can afford, you'll want to calculate your debt to income ratio by comparing the amount you owe to the amount you earn,” concludes Williams. “This way you can avoid feeling overwhelmed with debt and manage to stay on top of your repayments.”

For more financial information and advice on how to become #MoneySmart visit the Wonga Money Academy.