Are you in debt? Here’s how you can clean up your credit management and credit score
Money and access to credit make the world go round. It is the foundation on which all people progress, meet their basic and advanced needs, support families, buy homes and vehicles, study, travel, work – just about anything that is needed to have a life. safe and fulfilling.
Yet, as fundamental as money is to the security of our livelihoods, it is one of the least understood and least well managed essentials. Millions of South Africans are burdened with debts that they struggle to get rid of and have poor control over their personal credit management and spending habits. It doesn’t have to be that way!
“Spring is the season of renewal and new beginnings, so take the opportunity to clean up the cobwebs and master your financial and debt management in order to make your money and credit work a lot harder for you, instead. This is the perfect time to break old habits and put in place a plan that will give you the best chance of financial success when it comes to managing your money, your debts and your means, to better results, ”said Gareth Levinsohn, Commercial Director of Shapiro Shaik Defries & Associates.
“The best way to take control of your debt is to have a clear plan of your financial commitments, how much you are paying for debt service, and what benefit (is it good or bad debt?) , what are your future plans and if you are on track to achieve your goals. It’s important to always go back and review your financial plan as well as your financial commitments and credit agreements and make sure you’re on the right track.
Here are SSDA’s top tips for cleaning up your credit management and approach to debt:
Manage your credit score: A crucial but often overlooked aspect of personal finance is that of managing your credit score. Your credit score determines the loans you can get and the interest rates you will pay, especially on larger items – consider buying a house or a car or a student loan. The higher your credit score, the less expensive it will be to repay your debts, as you will have the best possible terms and interest rates due to your lower risk to the credit provider. Your credit rating also plays a much bigger role that goes beyond the “bank”: insurers use credit scores to set premiums and assess your risk profile, landlords use them to decide on leases. , employers perform credit checks before hiring to determine aspects such as character, personal background at the time of selection, a person’s overall level of responsibility and so on – especially for positions that require high levels of honesty and integrity and the management of cash or finances, such as in a retail or financial services role. Ultimately, your credit score is a vital financial tool that can be either a catalyst or a hindrance, depending on how you manage your available credit and your debt repayments.
Pay off your existing debt faster – Debt and credit usually come with interest, which means the more you pay, the longer you take to pay off your debt. If you can, increase the amount you repay each month. You’ll be surprised how much a little extra each month will reduce your repayment term and the interest you pay over the life of your loan. Start with your debt that has the highest interest rate. As you pay off debt or a credit agreement, divert the money you already used to pay to complete your next repayment, which means you’ll dramatically reduce your term and the interest charged. The most important aspect once you are done is to put the money you spent on debt repayment into a savings or investment account to provide you with a much needed emergency fund.
Always pay off your debts on time – As a crucial part of maintaining your very important positive credit score, make sure all payments and debt payments are paid on or before the due date, every time. Late payments will be reported and could impact your creditworthiness and the conditions of your credit provider.
There is good debt and bad debt – know the difference: Be careful about the type of debt you are prepared to take on. Remember, “good” personal debt is there to give you a head start in life – consider buying a house or a car (within your means), a student loan to further your education and your employability. , etc. Bad debt only serves to increase consumption and get you into more debt – think groceries and impulse shopping with your credit card, entertainment and restaurants, clothing, clothing, etc.
If you encounter payment difficulties, get involved! – If you are having real difficulties, proactively approach and negotiate with creditors and lenders from the start. If you are contacted by a debt collector, explain your situation so that they can work with you to find a solution. Different types of debt have different options – you might be able to temporarily suspend payments with a loan modification, or reduce monthly repayments or interest rates by entering into an agreement with the lender. Discuss your situation with the debt collector who will then come back to the lender to make other arrangements, if necessary. But don’t ignore the calls in the hope that the debt will go away – it isn’t! However, in the absence of a response from you, your role of unpaid debt will move to the legal stage and this will become increasingly difficult and negatively impact your credit rating and future personal financial health – something that is. very difficult to rectify once weakened.
Entrenched? – You may not even realize that you have credit insurance on some of your loans, retail accounts, and credit cards that are there to protect you if you are made redundant and unable to pay off your debt. Check all of your loan agreements and see if a credit insurance policy is active – they are usually in place for the life of the loan or credit agreement. This insurance can cover you for up to 12 months of debt repayment if you are made redundant, subject to the terms of the policy.
Control your consumption habits – much of the expense is due to habit and impulsiveness rather than necessity. Take a close look at your spending habits and avoid those that lead you into unnecessary spending traps. Establish a consistent budget and stick to your budget to achieve your financial goals.
Like all things worth accomplishing in life, financial health and freedom takes planning and commitment. The cumulative impact of all of your disciplined cost cutting actions can have a dramatic impact on your financial situation, reducing your debt to manageable levels and freeing up more money than you can save and set aside for the future. . Start small today, build and use the opportunity to protect the integrity of your financial well-being and your credit report, ”concludes Levinsohn.