Bank Better, Live Better

“The best way to manage debt is to pay it. There’s really no big secret,” says Financial Fitness Bunny, Nicolette Mashile. “And the benefits of paying it will be to your advantage in the long term. It helps you to build a good credit report that proves you can responsibly manage your finances. Plus, the quicker you pay it off, the more you save in interest and costs.”

Remember, credit is not the enemy, bad credit habits are. Here are a few good habits to form.

Habit #1: Do your homework

Before you apply for any kind of credit, it’s important to understand the following:

Who you borrow from

Always carefully consider who you borrow money from. If they are not registered formal lenders, they won’t comply with the National Credit Act (which is there to protect consumers) and they can charge exorbitant fees and interest rates. Plus, they might make use of unlawful practices when collecting payments. Different providers also offer different interest rates, so it’s important to ensure you get the most affordable offer.

Your credit history

It’s always a good idea to check your credit profile before you apply for credit. This will give you an idea of whether there are things you need to work on before starting the process, which will help your application approval and may assist you in getting a lower interest rate

Your motivation

Never take on credit for someone else, even if it’s family. This will impact your affordability when you want to apply for credit for your own needs. Plus, you’ll be liable for any penalties if they fall behind on payments.

Remember, as we covered in part 2 of The Credit Bootcamp, always make sure you are taking out credit for the right reasons.

Habit #2: Stay actively in charge

Managing your debt is without question vital for being financially healthy. And to manage it, you have to understand and be aware of all your financial commitments.

• Check your credit report, at least once a year. You can possibly check it on your banking app, but you’re also legally permitted to get a free copy once a year from a credit bureau like My Credit Check
• Stick to your budget. This handy online tool can help you
• Try to cut down on as many unnecessary expenses as you can, so you’re able to increase debt payments wherever possible. Those daily takeaway cappuccinos add up really quickly!
• Keep a folder with all the communication from your credit providers

 Habit #3: Pay on time

This sounds really obvious but you would be surprised about how many people neglect to do it. Schedule your monthly payments and make sure to pay at least the minimum payment on time every month on all your accounts. Your payment history has a big impact on your credit score.

Habit #4: Pay more (if you can)

If you can pay more than the minimum repayment, then do it. When you pay only the minimum, you’re left with a much higher debt balance for a longer time. Financial journalist Maya Fisher-French points out the following benefits when paying more than the minimum every month:

• You’ll save money on interest. Because interest is charged on the total outstanding balance, you can lower how much of it you pay by making bigger payments
• The repayment period is shortened. If you pay more than the agreed monthly instalment, your debt will be paid back sooner. Once your debt is repaid, you’ll have more money available to save towards your financial goals
• It can improve you a higher credit rating when reducing your balance faster
• You will have credit available for emergencies. If you for instance use your credit card a lot and pay only the minimum balance each month, you won’t have any available credit for emergencies. Pay off your outstanding debt as soon as you can to make sure your entire credit limit is available in case you need it

Understanding repayments

You want to do home renovations, so you’re considering taking out a loan of R100 000 over a 5-year term with an interest rate of 21%. Are there benefits of paying it off quicker? And what happens if you struggle to make the payments?

Don’t miss part 4 of The Credit Boot Camp. Read it here.