‘Spend wisely, avoid the debt trap’

14 January 2009

In the context of grim market conditions characterised by high inflation and interest rates, as well as record over-indebtedness, the National Credit Regulator is urging South African consumers to think twice before applying for credit.

“Consumers are advised to borrow money responsibly and wisely, especially at this time of the year,” NCR senior education and strategy manager Peter Setou said in a statement this week.

Setou pointed out that consumers were often desperate for financial assistance at the beginning of the year, and might recklessly take out various forms of credit, which included credit cards, clothing accounts, overdrafts, and long- and short-term loans.

“This entails borrowing money without planning how to repay the loan, borrowing money from unscrupulous credit providers, signing loan contracts they do not understand, and eventually finding themselves in worse financial predicaments,” he said.

Consumer rights

Setou pointed out that it was paramount that consumers be familiar with their rights as borrowers in order to protect themselves from unscrupulous lenders.

The National Credit Act, he said, was aimed at regulating South Africa’s credit granting industry, curbing reckless lending, and ensuring that consumers were protected from harmful business practices by lenders.

Key features of the Act are to ensure that interest rates and fees are regulated, and that the advertising and marketing of credit contain prescribed information on the cost of credit.

“Compare interest rates and other costs from different providers, always ask and make sure you understand what the total monthly payment, including insurance and all other charges is,” Setou said. “Avoid paying over too many months; it will cost you more in the end.”

In addition, a credit provider cannot legally enter into a credit agreement unless the provider has given the consumer a pre-agreement statement and a quotation in the prescribed form, as well as giving the consumer a copy of a document that records their credit agreement.

‘Must haves’ vs ‘nice to haves’

Setou pointed out that while many consumers received their bonuses and other extra income during the festive season, they did not plan on how to spend their money – ending up spending their extra income on “nice to haves”, instead of “must haves”.

He explained that consumers failed to plan for the New Year, for essentials such as school fees, uniforms, rent, transport and electricity, and were left with no money as they had exhausted all their income.

The NCR, together with partners like the Department of Trade and Industry, provincial consumer affairs directorates, the Financial Services Board, and the Council for Medical Aid Schemes, have been running awareness campaigns countrywide to educate consumers about their rights and obligations.

“We believe that an informed consumer is a protected consumer,” Setou said.

SAinfo reporter

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