Debt is an unavoidable aspect of life, however it must be noted that certain debts are an unnecessary evil that can lead to immeasurable financial difficulties. And debt is becoming easier to incur and harder to get rid of. Below we will discuss the factors, actions and types of debt that cause the biggest debt nightmares for South Africans.
Firstly not saving money is a large cause of debt. Any consumer should know that life can throw unexpected curveballs at them, and more than likely these will have financial consequences. A broken car or computer can cause a carefully curated budget to be thrown out of the window in order to cover the expense, and thus debt payments will suffer as the consumer struggles to find the money to cover these unexpected costs. Therefore always save a percentage of your income in a rainy day fund for emergencies.
Reckless spending and store credit is one of the leading causes of over-indebtedness. In a culture that is increasingly driven by materialism, owning the latest gadget or home décor item means that consumers are turning to credit to afford these things. It is not wise to purchase using store credit as it comes with incredibly high interest rates and demanding creditors. Once again, save up for the item instead of buying it on a credit whim. The same principle applies to credit cards – they are not extension of a person’s income but rather a luxury that should be used with care.
The constant increase of the cost of living in South Africa has seen many consumers turn to debt in order to make their income meet the demands of inflation. If your income no longer covers your standard of living, instead of turning to loans or credit cards – cut back. A minor sacrifice such as dining out less or buying cheaper groceries can prevent debt being caused.
Lastly it cannot be stressed enough how beneficial making and sticking to a budget is to a consumer. By knowing exactly how much you have to spend, and on what, you can manage your finances and stop yourself from incurring bad debts. Poor financial management is a leading cause of debt.
Article written by: Andrea van Tonder 06-2013