Lots of South African households are experiencing financial stress. But where should you go for loans and what avenues should you explore when you need to borrow money? Here is our advice:
In the last couple of months, South Africa’s growing consumer debt crises has received lots of publicity.
It started with reports of South African middle classes having difficulty repaying their existing debts on time, followed by reports that an increasing number of consumers were looking for extra income. According to reports, 37% of consumers have to work second jobs just to maintain their lifestyle.
Due to the current situation, many consumers will have the need to borrow money just to make ends meet. But should a consumer just take out a loan?
Try and follow these avenues first:
Use Your Savings
Should it happen that you find yourself not being able to meet your daily living costs, your savings should be the first place you turn to. Money from savings does not have the interest and other costs involved that a normal loan will have.
It is never a good feeling when you are forced to use your savings and as a result, consumers rather opt to use credit. The cost of credit is expensive and a loan should therefore be a last resort.
By using your savings you will only lose the minimum interest that you would have earned and save on all the extra costs a loan would have incurred.
Loans From Family Or Friends
Asking for a loan from family or friends could be the perfect short-term solution. They will most probably not ask for interest to be paid and the money could be a phone call away. But this type of “finance” comes with a lot of flaws.
The old saying of “never do business with friends or family” comes to mind. Do not ever borrow money from friends or family if you are not 100% sure that you will be able to pay it back on time. Draw up a contract which clearly stipulates the loan amount and repayment term. Make sure that you can comfortably pay the instalments by checking your budget.
A consolidation loan might be the answer, but these types of loans may come with high interest rates. Debt consolidation usually costs most over-indebted consumers more in the end because of the fees and interest linked to their profile.
Short Term Loans
Using a Credit Card, Overdraft or Short-term loan should be the last resort. Make absolutely sure that you know the terms of the credit agreement and what you are paying for. Do your homework, try and negotiate on the interest rates and initiation fees and ask a lot of questions. Many consumers end up paying almost double the amount that they applied for, so make sure you get the facts before accepting.
In conclusion, paying instalments with credit ends up costing you more as you are paying interest on a payment that already bears interest.
For any advice on Debt Review, give us a call or complete the call me back form on this page. Our Debt Counsellors will be able to assist you by reducing your monthly payments and interest rates.
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