What are the do’s and don’ts of credit
JOBURG: How to stay out of credits
Are you credit savvy? Do you know how to use credit to help you achieve financial wellness?
Credit can be a helpful tool in managing finances, but only if it is properly understood and appropriately used. It comes in different forms, ranging from overdrafts to car loans and credit cards.
It can be defined as the process of obtaining money, goods or services from a supplier without immediately paying for it. Instead, an agreement is signed that payment will be made in the future, usually with interest and other charges added.
Credit can empower you to handle emergency financial situations such as a medical bill or family crisis, but it can also enable you to seize an opportunity to invest in assets such as a home or a business, and realise your life dreams. The downside of credit is that it is not free.
“Credit certainly has its advantages but also some dangers if not managed responsibly,” said Mark Young, deputy CEO of Bayport Financial Services. He pointed out that consumers should never take on more debt than what they can afford, and definitely not use expensive debt, such as a short-term loan, to service cheaper debt such as a car or home loan instalment.
The one instance where it does make sense to take out a loan to pay off other debts is when consumers consolidate their liabilities. “Consolidation loans give you an opportunity to settle your expensive debt immediately and then to service only one loan, which will save you fees and bank charges,” said Young.
Another credit pitfall that consumers have to avoid is using credit for everyday items such as groceries or taking out payday loans for day-to-day expenses. “This creates a debt trap from which it is very difficult to escape,” said Young. “If you are struggling to make ends meet, the best you can do is get financial advice from a professional.”
