Cape Town - Very few people go through life without ever having to borrow money. Who has the cash to buy a house, or to fund tertiary education?
But here’s how to do it in such a way that it doesn’t land you in trouble.
1. Borrow as little money as possible. If you need R4 000 to pay your taxes, or your kid’s school fees, don’t be tempted to borrow more than that to ease your general financial burden right now. Borrow just what you need, otherwise later repayments could be crippling.
2. Choose the institution carefully. Make sure the place you borrow from is a registered financial institution. They have to operate according to certain rules and regulations and interest rates are fixed. Compare banks and see where you can get the best deal.
3. Stay away from loan sharks. Going down this road can be the beginning of years of financial misery, as many of these moneylenders charge huge interest rates. It is very difficult to escape from this cycle, especially when you end up having to borrow more to pay for life’s necessities as there’s nothing left once you have paid the loan shark. Don’t ever let anyone take your bank card and your ID book.
4. Borrow just for certain things. Borrowing to fund your children’s education or a home loan can be a good thing, but unless there is a once-off crisis, try never to borrow money to pay for consumables, to pay off other debt or to fund luxuries. An expensive holiday or designer clothing can condemn you to a lifetime of debt.
5. Plan the repayments beforehand. Before you apply for a credit card, store card, overdraft, personal loan or any form of credit plan carefully on how you are going to pay this back. Also take into consideration the interest and other charges, as well as how this will affect your ability to save. The longer you take to settle a loan, the more it will cost you.
6. Check out the loan insurance carefully. Sometimes this can be very expensive, but then you might need it if something happens to you. Read the small print and don’t be pressurised into making a quick decision about this.
7. Be honest about your situation. Make sure that you honestly disclose all the information required by the credit provider. Dishonesty may cause you to lose the protection offered by the National Credit Act.
8. Create a monthly budget and stick to it. Work out exactly what your family income is and what your total expenses are each month. Would you be able to pay for your new debt once you’ve covered all your expenses? You should also plan for unexpected costs such as if one of your family members were to be retrenched.
9. Always keep receipts of your payments. You might need these as proof that you have in fact paid the account. The rule of thumb is to keep receipts until that particular debt is paid off.
10. Pay your debts on time. Paying late will adversely affect your credit rating and possibly your ability to take out credit in the future. If you think you cannot meet your monthly instalments, call your credit provider immediately and try to re-arrange payments. Do not wait until you skip payments.
11. Prioritise your home loan. Nothing is more important than this. Your home will probably be the biggest asset you will ever have. Do whatever it takes to hang onto it.
12. Check your credit report regularly. This way you’ll be able to identify any errors and correct them. According to the National Credit Act you are entitled to one free copy of your credit report each year from each of the 11 registered credit bureaus. Additional copies cost R20 each excluding VAT.