Tips for surviving credit difficulties

AVOID BORROWING TO PAY OFF DEBT ...

 

1. Avoid using credit cards to pay of debt.

 

2. Credit creates more debt.

 

3. If retrenched use the retrenchment packages to pay debt.

 

4. Cut down on unnecessary expenses or luxuries. \

 

Visit http://www.ncr.org.za/index.php?option=com_content&view=article&id=3 for more tips.

African Bank fined for reckless lending

After an investigation into reckless lending by the National Credit Regulator, African Bank has agreed to pay a R20 million fine.

It was earlier uncovered that African Bank lent millions of Rand recklessly.  Initially the Credit Regulator a R300 million fine for African Bank's reckless lending practices.  However, after a settlement has been reached between the Regulator and African Bank the fine was reduced to R20 million.

In the layman's language reckless lending takes place if a consumer is granted credit without the credit provider making sure that the consumer can afford it, or if credit is granted while the credit provider knows that the consumer cannot afford the credit.  In short reckless lending may also result in debt being written off.

 

Saving your Future

Did you know...? 

•  67% of adults don’t save
• South African Reserve Bank (SARB) indicates the average South African Household savings rate is around 1.7%, which is alarmingly low
• Many people will be forced to work for much longer than the average 40-year period

Understanding your financial needs and habits requires discipline which can save your future and protect your wealth. The Teach Children to Save South Africa (TCTS SA™) Campaign encourages saving through three ways.

Identify Your Needs vs Wants

• It’s important to distinguish between a ‘nice to have’ and a fundamental life requirement that adds real value to your children’s lives. Do I need a smart phone or do I want a smart phone?
• Understand the value of delayed gratification and yield the rewards you will get from responsible financial behaviour. Should I borrow money to take a holiday or should I save for it?

Learn to Save

• Learning to save is the first step in successful money management. So draw up a plan with both short and long-term goals.
•  Start saving and be disciplined – the earlier you start, the better.

Build Your Wealth

• Our youth needs to be taught the principles of the wealth cycle – mainly to learn how to save, spend, donate and invest earnings responsibly.
• Entrepreneurship is at the heart of job creation in South Africa. As an educational initiative, TCTS SA™ promotes the entrepreneurship route as an effective tactic to address high unemployment.

So where do I start and what are some of the ways to teach my children about money?  Visit:  http://www.banking.org.za/index.php/initiatives/teach-children-to-save/parents-and-guardians/

Tips to help consumers who are experiencing financial difficulties

 

Create a budget-write down everything you spend money on, then analyse all your bank accounts and make changes where necessary, meaning take out all unnecessary expenses. By doing this you will probably save a few rands which you can use to pay debt and save.
 

Stick within your means; don’t spend what you don’t have as credit costs money.
 

Do not cancel your short term insurance cover: if something happens to the car you may be faced with higher costs than if insured.
 

Should you be retrenched, inform your creditors and use your retrenchment package to settle your debts. You have the right to settle your debts earlier. Note that there is a difference between the outstanding amount and the settlement amount. Contact your credit providers and get the settlement amount. This is what you should pay.

 

 

Try and save monthly. Avoid keeping money in non-interest earning or low interest earning accounts. Shop around for different options.
 

You have the right to one free credit report annually from registered credit bureaux, utilise this right and know your status.
 

Your credit profile can affect your ability to secure certain jobs (especially those related to finance) so keep a clean record at all times.
 

You have a right to receive assistance when you are over-indebted. Contact your credit provider to discuss your situation and negotiate an affordable repayment plan; if you cannot reach an agreement with your credit provider, you may contact a registered debt counsellor to assist you. Note that when you are under debt counselling you will not be able to get further credit until you have settled all your debts.
 

 Avoid getting more debt, rather downgrade your lifestyle.
 

 

(Source: http://www.ncr.org.za/press_release/Be_informed_afloat.pdf)

The value of a monthly budget

The value of a monthly budget

 

 

A monthly budget can help you to decide how to spend your money, plan for your future, pay off existing debt, plan future debt, and save a few rand each month by reducing wasteful and impulsive purchases. To create your monthly budget:

• Categorize your expenses.
  When you begin setting up a monthly budget, start with big categories before breaking your budget down into smaller expense categories.
• From your list of expenses, develop two separate budget lists, one for essentials and the other for extras.
  Within each general budget category, some items are essential (debt or rent payment, electric bill, and groceries); others are extra (new furniture, gift etc).
• Look through these lists to find flexible budget expenses where you can cut back.
  Put a star next to these flexible items so you can identify them.
• Estimate what you spend.
  Go through receipts or records you’ve kept over the past few months so you can track how much you actually spend on both essentials and extras. If you have a bank account, check your bank statements.
• Add up your budget essentials list and the extras list separately.
  By keeping the lists separate, you can make cuts more easily, if you need to.
• Subtract the essentials total from your monthly income and, if you have money left over, subtract the extras total from that amount.
  If you still have money left over, great! Look into a savings or an investing plan.
• If your extras list takes you into negative numbers, start looking for places to cut back.
  You can also trim from the extras list to put more money toward debt repayment if that’s a high priority in your financial picture.
  An example (http://www.women24.com/CareersAndMoney/Money/Budgeting-made-easy-20130606):

Monthly budget

 

Income	Budgeted	Actual
Salary
Interest income
Other income
Expenses
Home loan / Rent
Property rates / townhouse levies
Credit card payments
Vehicle financing / Transport costs
Hire purchase agreements
Insurance
Life assurance
Retirement annuities
Savings, for example, unit trusts, society schemes, fixed deposits
School / Other educational costs
Domestic worker’s wages
Retail card accounts
Savings for emergencies / Stokvel
Sub total
Variable monthly expenses
Water and electricity
Telephone (cellphone included)
Food
Petrol / Vehicle maintenance
Medical expenses
Household
Clothing
Entertainment
Sub total
Total expenditure
Total expenses

 

 See the following sources and websites for more information:

• http://www.women24.com/CareersAndMoney/Money/Budgeting-made-easy-20130606
• http://www.dummies.com/how-to/content/how-to-create-a-monthly-budget.html 
• http://www.sanlam.co.za/wps/wcm/connect/88f7b1004ca30d30bf2ebf09ce5fdfab/Be_in_control_of_your_day_to_day_finances.pdf?MOD=AJPERES
• http://www.investecassetmanagement.com/south-africa/global-documents/learning-centre/how-to-draw-up-a-simple-budget

How credit and credit scores work

How credit works:

When a consumer does not have sufficient cash to buy goods or services or to pay for other obligations, money is usually "borrowed" from a financial institution, bank or person (a credit provider).

In a normal credit agreement, three parties play a role: you (as the consumer), a credit bureaux and a credit provider.  When approaching a credit provider for credit or when applying for credit, a credit provider evaluates your income to determine whether you can afford the credit, put differently, whether you are able to repay the monthly instalments (repayment + interest).  Since the credit provider lends you money and gives you the opportunity to repay the money over a period, interest is charged.  The credit provider also obtain date from a credit bureaux to determine if you are a risky customer, based on your previous credit agreements.  The lower the risk, the better the interest rate.  Once you obtain a loan, the credit provider will also report all information pertaining to your loan to a credit bureaux which will have an impact on future applications for loans.

See the following article on bad credit records:

http://www.sabc.co.za/news/a/a45e96004ff9b97b9b4efb0b5d39e4bb/Youth-warned-of-bad-credit-record-20130613

Welcome note

Welcome

This blog is operated by specific members of the Department of Mercantile Law, University of South Africa (they will be introduced at a later stage). The aim of this blog is to notify members of the public of developments in consumer protection law in South Africa, to share research conducted in the Department with the public, and to educate the public on consumer law.