The NDMA have spoken out on the subject of how to borrow money on credit:
Be savvy about borrowing.
With the festive season over, borrowing wisely in the months ahead can mean the difference between a prolonged debt hangover and building a solid financial footing for the year ahead.
“It’s back to reality for consumers,” says CEO of the National Debt Mediation Association (NDMA), Magauta Mphahlele. “With bills to pay and debts mounting, many need a clear plan of action to ensure that they don’t slip into over-indebtedness.”
Mphahlele says revising your budget, cutting back on unnecessary spending, and looking for better deals on everything from your cellphone to transport costs is a good way to make sure that you are able to make a dent in your debt. She suggests starting out by taking a fresh look at your financial situation, setting clear financial goals and developing the discipline to stick to them. Good financial planning and management involves not only prudent spending, making provision for emergencies and savings but also ensuring manageable debt levels and a clean credit record.
“Ideally, to remain in a healthy financial position, you shouldn’t be spending more than about 35% of your disposable income paying off debt,” says Mphahlele. The reality is that South Africans are spending 76% of their income on paying off debts and this is not sustainable. “Putting plans in place to get your debt down to a reasonable level is a good starting point.” She says in addition to determining whether incurring debt is necessary, before signing any credit agreement, consumers should compare costs between different lenders. “Ask for the 5 day quotation provided for by the National Credit Act and only sign the agreement if you understand the true and long term financial implications for you and your family,” she adds.
Mphahlele also provides the following tips on how to borrow money:
1) Understand your rights and obligations.
Understand your legal obligations as well as the rights of the credit provider if you do not meet those obligations. Be honest about your income and expenditure when applying, keep your contact details up to date, respond to letters of demand, especially section 129. Know when and where to complain or seek advice if things go wrong.
2) Understand the terms of a loan.
The principal amount is the amount that you have borrowed and on which you will pay interest. Shop around for the best interest rate and understand how much you will be paying back in interest each month and for how long. Also look for hidden costs, such as initiation fees, service and administration fees.
3) Look at your debt holistically.
Make a list of all your debts and determine what your total debt obligations are compared to your income less your essential expenses. If you see red lights, make a plan or seek professional advice.
4) Never take on new debt to pay off existing debt.
This is one way to get you stuck in a debt trap.
5) Pay your debts on time.
Not only will you end up paying more in interest rates and penalties, but paying late could affect future borrowings and your credit bureau record. Call your credit provider as soon as you think you will fall behind in your repayments and they may be able to help you restructure your repayments.
6) Speak out.
If you’re having difficulty making your monthly payments, contact your credit providers or the NDMA for advice as soon as possible. Don’t try to deal with your financial issues in secret or by denying the problem, make your family aware of your situation so that they can help too.
7) Check your personal information at credit bureaux regularly.
Don’t leave it until you apply for credit or a new job to find out that the information held by a credit bureau is incorrect. You have the right to challenge any incorrect information. Under the NCA a credit bureau must provide you with one free copy of your credit report each year. You can access additional copies at a small cost.