Overspending on credit
JOHANNESBURG – A Sandton-based lecturer explains why we should think twice before swiping our credit cards and spending more than we have.
In the tough economic climate that South Africans face, many are still buying luxury goods and swiping their credit cards regularly.
Sandton-based economics and accounting lecturer, Carmen Carvalho explained why this was the case. “Recent studies have been conducted on consumer spending and they show that consumers continue to purchase on credit, despite four repo rate increases in the last year.
“Studies reveal that most items purchased on credit are luxury goods or paying for travel excursions. These are incurred to celebrate birthdays, anniversaries and Christmas.”
She further explained that many consumers felt that they have to keep up the appearance of being successful by obtaining all the latest technological gadgets, purchasing the latest car models and taking overseas trips.
“The adage of buy now, and pay and worry about the expense later seems to be widely adopted by the consumers. However, as interest charges increase, it means that debt becomes more expensive and takes longer to pay off.”
Carvalho believes that credit cards should only be used for emergencies and for necessities, and only if a consumer knows the debt can be paid off at the end of the month. She is a firm believer that one should not buy what one cannot afford.
“Unfortunately, non-payment or late payment of credit cards or loans means that a consumer’s credit bureau rating decreases, making it difficult to borrow money in real emergency situations. To maintain a good bureau credit rating, consumers may approach their bank for assistance in adopting one of three plans available to pay off outstanding debt.”
She added that these plans included a short and long term plan, restructured plans and debt counselling.
Carvalho believes that a disciplined and structured approach is the key to eradicating debt. “One of two strategies can be followed by the consumer to ensure this. Firstly, pay the required minimum amounts on all lower interest cards and pay extra cash into those bearing higher interest costs.
“Once a card is paid off, pay the other cards in a similar manner. Or, pay off the card with the lowest outstanding balance, at the same time, not neglecting to pay the required minimum payments on the other cards.”
She said this was the easiest way to pay off a card fully.
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