Even with interest rates on the rise, you can still manage your debt. Here's how:
The first quarter of 2014 has hit consumers’ pockets hard: the inflation rate has reached the 5.9% mark after a third consecutive increase in February 2014 and the repo rate, which many predicted would only change in March 2014, was increased by 0.5% at the end of January 2014.
Although the repo rate was not increased last week, the general sentiment indicates that there may be more increases to follow in the near future.
“Consumers are coming to grips with the impact that these ongoing increases are having on their budgets and for some, meeting everyday living costs whilst making minimum payments required to service their debt will become increasingly hard,” says Johan Maree, CEO of FNB Credit Card.
Although the 0.5% increase in repo rate only results in approximately R12 more per month on a credit card balance of R30 000, it is when all your debt is tallied up that it can become hard to ensure timely and full repayments.
For example, a 0.5% increase in the interest rate on a R850 000 home loan, R160 000 vehicle finance loan and R66 000 of credit card debt quickly adds up to R345 per month in additional repayments.
Add to this another two increases of 0.5% and before you know it you will be paying R1 060 extra every month.
According to Maree, consumers can, despite the increase in rates manage their debt successfully and even work towards improving their credit score.
Here are some tips:
1. Know your status!
Check your credit records at all credit bureaus. South Africans are entitled to one free report per year after which additional reports can be attained at a small fee.
“It is important to check the information that the various credit bureaus have on record of you to ensure they are up to date and accurate before applying for large loans or additional credit,” mentions Maree.
2. If you don’t use it, lose it…
Reassess your monthly spend and reduce your credit limits accordingly. If you notice that you are spending on items which you can cut down on, do so and close any retail accounts you no longer make use of.
Keep in mind that the credit card rating of someone whose debt to credit ratio is 75% or below, will be more favourable than on a card on which the maximum limit is reached monthly,” advises Maree.
3. Stability and a higher score go hand in hand
A credit provider will consider how long you have worked at you current job and how often you move residences as part of the credit rating process.
It is used as an indication of your stability, trustworthiness and risk profile in the event that debt has to be collected from you.
4. Ensure that all your bills are in your name and keep proof of payments
If you have paid your debt off in a timely fashion over a number of years, chances are you can work towards a credit rating that could afford you a more favourable interest rate.
It is therefore crucial to ensure that all your bills and debt that you are repaying is in your name so that you can benefit from a positive credit rating.
Note that repaying someone in a personal capacity will in no way contribute to your credit record.
5. Pay more than the monthly minimum
When you receive your credit card statement, a monthly minimum and due date are indicated. If you regularly only pay the minimum and make little impression on the total owed, your card company may see this as a sign of distress and may reduce your access to future credit.
With every repayment try and pay a bit extra and keep a record of all slips and documentation after paying your instalments.
When paying large amounts of debt in full, ask the credit provider for written documentation indicating the details of your debt term and date on which the amount has been paid.
“In order to work towards a favourable credit score, the least you have to do is to always meet your monthly minimum payments.
If you need assistance in getting on track with your finances or if you find it difficult to meet your payments, contact your bank to discuss possible debt relief options.
Your bank is there to assist and will be happy to put a solution in place,” concludes Maree.