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Credit may seem painless, but it's a rap... Nine reasons not to shop until you dro... Bank's 'expert' advice put pensioner on ... Ailing? You may qualify for a larger ann... |
Credit may seem painless, but it's a rapid road to ruin
Prising yourself out of the debt trap requires an iron will, writes LEIGH ROBERTS
CREDIT is the root of financial disaster: it's easy to get, easy to use, tempts you to buy things you don't need, and is the prime cause of individual bankruptcy. In our credit-driven society it has become an accepted way of life to have a wallet-full of credit and store cards, a bank overdraft, a mortgage bond and a car loan. In fact, the average South African has never had such a high debt level and such a low level of personal savings. Falling into excessive debt puts one firmly on the path to losing control, says Danie Vorster, author of a new book, Debt-Trap or Debt-Free. "Each time we enter into a transaction on credit we give away our power. We lose control. We enslave ourselves to some bank or store which has control over the fruits of our labour in the future." As falling into excessive debt is a gradual process, many people are only aware of the extent of their debt when it is too late and creditors are at the door. In our quick-fix society, says Vorster, buying on credit becomes an ingrained habit which plays out the behaviour-related reasons why people willingly put themselves into debt, namely bad habit, indulgence, weak self-discipline and false beliefs based on the common fallacies of debt (see story below). While being debt-free is best, there's nothing wrong with having a manageable loan or mortgage, even credit cards, provided you pay the bills when due. The problem is that debt can be addictive, and some personalities are more susceptible than others. Vorster's rule of thumb is that durable goods which have a life longer than five years can be bought on credit - provided the debt is managed and is affordable in terms of the individual's monthly disposable income. Goods with a life of less than five years should be bought with cash. And food should never be bought on credit. "It's about being responsible and buying what you can afford, rather than what you want." Of course, there are times when circumstances beyond our control, like retrenchment or a major operation, cause us to borrow money. Such major unexpected events have a devastating effect on our finances. Vorster says proper financial planning (like having a monthly budget), providing for unforeseen contingencies and living as debt-free as possible, will soften the blow of a catastrophe and can make the difference between surviving or not. The way to get out of the debt trap, says Vorster, is to commit yourself to do something about it. Resolve that you will not incur any further debts, and that you will get rid of your existing debts over a realistic period of time, say five or 10 years. The price of debt in South Africa - a real interest rate of about 12% - is among the most expensive in the world and is likely to remain so in the next few years until the country's foreign exchange reserves are built up again and the currency is less volatile. Here are ways to ease the debt pressure: But taking out an enlarged home bond is merely running away from your creditors.
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