While income gives us a sense of financial security, statistics say that many of us heavily rely on unsecured debt to get through each month. If this is you, here are five ways to handle your credit
Pay off your debt: There is no getting away from this step, to get out of the debt cycle, you must cut back and get rid of unnecessary credit. There are a couple of ways to approach this; the first option is to pay off smaller debts/loans first. Once these are paid off, you can redirect these payments towards bigger credit obligations. Alternatively, you can prioritise paying off debt with the highest interest rate first. This will also help to save on interest over the long-term.
Consider debt consolidation: This enables you to consolidate your qualifying debt from various credit providers into one convenient and affordable long-term repayment. A typical example would be a solution such as FNB’s Credit Switch, where you only pay one interest rate, one installment and one set of fees. This can potentially free-up some cash flow to enable you to save.
Manage your credit record: When credit providers assess your creditworthiness, they look at your overall financial behaviour. Whether you have missed a payment on a store card, furniture retailer account or a registered micro-lender – it is all recorded on your credit profile. So be careful on spending more than what you earn. Make sure there is enough money in your bank account for debit orders.
Avoid taking on unnecessary new debt: Taking on new debt once you have excess cash flow can be tempting but it’s important to resist falling back into a debt trap. This is your opportunity to prioritise building a savings kitty for emergencies or saving up for a deposit to invest in an asset like property, which can generate long-term value.
Use credit to improve your future prospects: While we highlight concerns with using credit for consumption expenditure, sensible use of credit can create significant value. Education is a major driver among customers who seek unsecured credit and this generally adds significant value to long-term earnings prospects. Transportation is another key factor, therefore using vehicle finance to buy a car for personal or business is significantly less expensive than using an unsecured loan for this purpose. Lastly, property is the largest driver of savings for a proportion of households, hence using a mortgage to purchase property saves you from paying escalating rentals, instead, your installments remain fixed while the value of your investment will grow over time.
Do you need help with your financial management? Share with us what you need help in the comments below.
Words: Raj Makanjee, FNB Retail Chief Executive