Entering a credit agreement
When you sign a contract and enter into a credit agreement
with your credit provider, you are legally obliged to pay back the principal amount, interest and other costs within the time frame stipulated in the legal document. If you do not adhere to this, you are in breach of contract.
Consequences of breaking your credit agreement
“A debt is still unpaid, even if forgotten.” – Irish Proverb
When you skip a payment or pay less than the minimum instalment, it will be listed against your credit profile as “negative” behaviour. This can have a major impact on your credit record, seeing that credit providers report this information to the registered credit bureaus on a daily, weekly or monthly basis. All credit and payment information is reported to all registered credit bureaus in South Africa on a daily, weekly or monthly basis.
Signs you are heading for credit trouble
If one or more of the following situations applies to you, you are heading towards credit trouble and need to address the situation as soon as possible:
- You depend on inconsistent, unpredictable income such as overtime or an extra part-time job to pay your bills
- You always look for extra cash by selling goods to pay your debts
- Your expenses exceed your income and you run out of money before the end of the month
- You borrow money from family members and friends to get through the month
- You are repeatedly at or near the maximum credit limits on your credit or store cards and lines of credit
- You often struggle to even make the minimum payments on any of your credit agreements
- You regularly miss payments and find yourself falling further and further behind every month
- You are not able to set aside any money for savings, or you often need to take money from your savings account to pay your bills
- You regularly find yourself taking loans, or cash advances on your credit cards, to make ends meet
Steps to follow when you find yourself in credit trouble
If you find yourself in financial distress and you are unable to meet your payment obligations, you should follow these steps:
1. Draw up a budget
. Manage it on a monthly basis, and revise it when necessary.
2. Stop increasing your debt. Close unnecessary accounts and limit yourself
to only a few accounts.
3. Track your expenses
. Keep a record of all the money that goes in and out of your account. Identify the areas where you overspend and reduce these expenses.Identify expenses on luxury items and cut them out.
4. Add income
. Sell anything you don't need and use your hobby to make some extra cash.
5. Have a credit health check-up. Get a copy of your credit report
(at least once a year) to see exactly how much you owe to whom and what accounts you are further behind with.
Contact your credit providers
to negotiate the repayment terms to suit you both. You can arrange to pay lower instalments and over a longer period of time. Also speak to them about 6. the possibility of a consolidation loan. If you agree to a new payment plan, stick to it!
7. Once you have paid off one account, use the money from previous instalments to pay more debt
on another account.
8. Look at your insurance products and see if you can switch
to a cheaper option.
9. Keep your eyes on the future. Sacrifices today will mean rewards tomorrow
10. Draw up a debt checklist
. This checklist can help you to prioritise your debts so that you can determine where to allocate any extra money you have identified from your budget. You should try to pay off debts that might bring you the greatest relief, for example where legal action has been initiated or an asset will be attached and sold or where there is a loan with a very high interest rate.
Debt checklist example:
If you feel that you are still drowning in debt after taking the above steps, do not hesitate to seek professional advice.