With the high interest rates and inflation bedevilling South Africa, many consumers are in a catch-22 situation on how to manage their finances.
In recent years we have seen the cost of living far outpacing the growth of personal income, resulting in many consumers having their salaries running out in days, after pay day.
To survive, consumers tap into some of the credit products, including credit cards, among others, that are available on the market. The only shortcoming is the high costs associated with a credit card, making the product to be a grudge payment. However, if used responsibly, a credit card can work for you.
“In recent years, high inflation and soaring interest rates have made financial management a tightrope walk for many South Africans,” said Privesan Naidoo, the executive for trading product (card and payments) at Nedbank.
“These challenging economic conditions can understandably make people a little careful of applying for credit. However, a well-chosen and responsibly managed credit card can be a strong financial ally, especially during difficult times.”
Naidoo further advises using a card that aligns with your spending habits, paying the balance in full each month to maximise rewards, and considering competitive interest rates and fees.
“Look for the best interest rates and low fee,” he said.
Senzo Nsibande, the CEO of FNB Card, says a credit card is a great way to build your profile when used responsibly.
“It provides a competitive interest rate that allows for interest-free purchases while building your credit profile for future credit you may need, such as buying your home or your first car,” he says.
He said if you settle the full amount due each month rather than the minimum repayment, you can also avoid paying any interest at all on credit cards.
“You must monitor your expenditure to ensure that the money you are spending is not more than the amount you are paying into your credit card.”
Nsibande asserts that not everyone can afford to pay off the full balance on their credit card each month.
“In this instance, you may choose to use the budget facility, where your repayment is spread out over six months to 60 months. However, if you choose to use the budget facility on your credit card, you should note that you are charged interest from the day you swipe the card until you repay the full amount used.
Nsibande adds that consumers should set a responsible credit limit. “Your bank will give you a credit limit based on your income and affordability. However, only you know what your discretionary expenditure is each month. Figure out what is a reasonable credit limit that is within your affordability and speak to your bank about reducing the limit,” he said.
