When it comes to your hard-earned cash, it’s important to make wise financial decisions, like considering the reasons you need credit. Here are five things to consider first before taking credit
Many of us make the mistake of thinking that simply because we qualify for credit we should take it. Tempting as it might be to do that we should understand that the function of credit should primarily be to improve one’s life over time instead of funding a lifestyle expense. For example, borrowing to finance studies has a material benefit on your professional life whereas using credit to host a party will have no impact on your life except leaving you with a debt burden. It’s important to be able to differentiate between needs and wants as that will help us decide whether or not to take credit.
Here are five things to consider before approaching umashonisa, yes, even your bank for credit:
- Make sure you can manage the debt while having to honour other existing living expenses that are already part of your expenses.
- Relook your budget to ensure you can afford to pay the agreed amount for the number of months until the loan is settled.
- Ask the lender what will happen if you miss a repayment.
- Are there any additional charges that may apply such as administration fees for the loan, if so ask what exactly you will be paying additionally.
- Ask about the interest rate and how it’s applied, some interest rates are calculated daily, monthly or annually.
So, depending on the loan amount that you take, it’s important to understand that any debt that you have will impact your finances. Commit to having a budget in place, this will help determine if you are in a position to take on credit in addition to the existing expenses. If not the best approach is to determine if saving would be a better option, especially if you need the money for non-essentials such as a weekend. Credit can only benefit you when used responsibly and that means borrowing for the right reasons and not to cover daily expenses.
Words: Dhashni Naidoo, Programme Manager for FNB Consumer Education
What regrettable thing have you used your credit card for? I’d like to hear in the comments below: