In an economy that is subject to an ever increasing inflation rate, consumers in South Africa are increasingly turning to debts in order to maintain a lifestyle that they have become accustomed to. This is because incomes do not keep up with the inflation rate and just trying to keep up with Jones’ is forcing consumer to make bad debt choices. But what are these common bad debt choices?
First of all consumers are treating their credit cards as though it is another form of income. They often purchase unnecessary items on their credit cards because they cannot afford it. This leads to monthly payments that increase and puts consumers in a position where repaying the money they have spent on their credit cards becomes hard to do. Therefore in order to avoid this common cause of bad debts, consumers should leave their credit cards behind when stepping out.
Secondly consumers are relying on store credit far too often. Store credit is dangerous due to the incredibly high interest rates, hidden fees and short repayment periods that come attached to them. This form of debt becomes a convenience for consumers when it comes to buying clothes, make-up, electronics and home décor items. The golden rule should be, if it cannot be bought with cash it shouldn’t be bought at all. Consumers should save up for these items and budget for them, instead of relying on bad debt choices to afford them.
Lastly due to inflation consumers find that their income does not last the month and instead of cutting a few corners and expenses, they turn to short term and pay-day loans in order to survive the last week of the month. These types of debt should be avoided at all costs, as they start a cycle of dependence on the loans to get by. Instead of incurring this kind of debt, consumers should set up a strict budget and stick to it. This way they will not be caught unawares before payday.
The most common cause of debt is simply not spending smartly and relying on debt to afford a lifestyle that may no longer be feasible to due inflation, or a reduction in income.
Article written by: Andrea van Tonder 06-2013