Theunis Kruger, head of unsecured lending at Standard Bank spoke of how credit, be it a loan or credit card, can be a good tool to help people buy items that their regular cash flow does not allow them to purchase.
He, however, cautioned against using the same credit for unnecessary things, which can have a detrimental impact on the consumer.
“When used to live beyond consumers’ means, credit can quickly become a financial and emotional burden on the person who took it,” he stressed.
“Using a loan wisely can actually be beneficial in many ways; the trick is to view the use of credit as a tool to invest in your future, rather than a way to live a life of luxury in the short-term.”
Kruger highlighted the difference between good and bad debt, saying that the good kind would be used to invest in useful items such as education and purchasing a house.
Bad debt, on the other hand is viewed as debt which has no realistic repayment plans and is certain to deplete a consumer’s wealth over time.
“The rule is: If you can’t afford to borrow the money, meaning you can’t make the monthly repayments, it is definitely bad debt,” he said.
Kruger continued that should there be any doubt as to the nature of the debt, it is best to compare the length of time the purchase is likely to be useful and the repayment of the loan.
If the ‘useful life’ is shorter than the time it will take to repay the loan, this is then considered bad debt.
He concluded by urging consumers to speak to a consultant when it came to managing credit and using it wisely. “Bank consultants can help you craft the right combination of products for your needs,” he said.
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