Don’t fall into the festive season debt-trap

The general downturn in economic conditions and weak job market has had an impact on South African households.
Ms Salem Nolubabalo Dyafta, the public relations manager for Credit Ombud, said despite a slight improvement in the number of impaired accounts, they still have a large number of consumers with impaired credit records, which suggests that millions of consumers are still struggling with too much debt.
The Credit Ombud, Ms Nicky Lala Mohan said that many households rely on credit to cover their day-to-day expenses, which suggests that they are not living according to their means. The latest stats show that, of the 24.08-million credit active consumers, there are 9.67 million consumers with impaired credit records.
“With the festive season approaching, this gives rise to some concern,” said Ms Lala-Mohan.
Overspending during this time of year is often an emotional response. Consumers feel that they have worked hard all year and deserve to spoil themselves and family members. However, many consumers are already struggling to pay their debts and others don’t budget for the additional festive season spending, causing them to fall into the debt trap as credit cards are maxed out to.
“Consumers need to be warned that it is irresponsible and dangerous to spend too much on credit just because it seems like everybody else is doing so in the shopping malls,” said Ms Lala-Mohan.
“What consumers should realise is that come the end of January, you have to pay back the loans as well as school fees. If you cannot afford the repayments and once you fall behind, it can be very costly in terms of interest. This is usually the first step to a debt spiral. If it’s not in your budget, don’t borrow to get it,” she said.
The Credit Regulations were amended recently and the effect, especially in the clothing retail space, is that consumers may find it more difficult to open credit accounts. The purpose of the stricter rules around the granting of credit was introduced to curb reckless lending and to prevent consumers from obtaining credit which they could not afford. Ms Lala Mohan warned consumers that they may find the process of opening new accounts during this years’ festive season more difficult than in the past and they should be aware that certain documentation will be required as well as credit checks.
Another new regulation that came into force on November 11, 2016, relates to the requirement for all providers of credit to register with the National Credit Regulator (NCR). This means that any credit granted by an unregistered credit provider after this date would be unlawful and unenforceable.
Consumers are advised to take care to only do business with registered entities and report illegal activities to the NCR.
“Each year consumers spend thousands of rand on items such as gifts and other luxuries because they get carried away with festive spending. With a little bit of extra cash from their bonuses, consumers get sucked into advertising and marketing deals such as: Take two for the price of one, buy now, pay your first installment next year. Theses advertising campaigns are designed to manipulate consumers into spending more over the festive season,” said Ms Lala-Mohan.
The Credit Ombud gives the following advice to consumers to ensure they don’t find themselves in trouble in January:
* Avoid new debt.
* If you have not saved for it, don’t take out debt for it. Make sure you can afford the goods before you purchase them.
* Have a festive budget.
* List and add together all your income and list all your expenses for December and January. Don’t forget items like stationery, school fees and transport for January.
* Subtract your expenses from your income and what is left over can be your budget for the festive season.
* Avoid buyer’s remorse.
* Make a list of items you want to purchase before going to the stores to avoid compulsive shopping.
* Eat at home.
* Before going out to the shops, eat at home to avoid spending unnecessary money buying luxury food items on display or spending too much for the whole family to eat at restaurants.
* Compare prices.
* Before you spend, compare prices between stores to get the best deals.
* Be creative with gifts.
* Instead of buying gifts, make them at home. This is one of the best ways of saving.
* Be careful of festive adverts.
* Don’t be misled by stores offering you gift vouchers with purchases or when you open accounts as you might find yourself buying things you don’t need and opening accounts unnecessarily.
* Avoid end of season sales.
* Only enter into credit agreements with registered lenders.
Consumers can contact the office of the Credit Ombud for free assistance if they experience any issues relating to credit agreements with non-bank credit providers such as the clothing and furniture retailers as well as micro-lenders, fraudulent listings, emolument attachment orders (“garnishee orders”) or general complaints about their credit bureaux listings.
The office can be contacted on 0861 66 28 37; on the website www.creditombud.org.za; email us at ombud@creditombud.org.za or send a sms to 44786 and they will call you.