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How to Manage Debt Effectively

While millions of South Africans are drowning in debt, there are also millions who are managing to use credit effectively. Here’s what you can learn from them



Hein du Plessis, managing director at DebtSafe, says there are three main reasons why some households manage their money more effectively. ‘Some households are better at living within their means because they have a frugal mind-set; they earn enough to support themselves; and they are simply better at cutting back on unnecessary expenses and knowing how to save and budget effectively.’



He says while it’s important to earn enough to support a household, the right mind-set and skills are essential. ‘South Africans are notoriously bad at saving and are also big fans of retail accounts – which together can be a significant problem in the long term. Taking on credit on a small scale may not seem like a major financial responsibility, but it all adds up, which is how many consumers find themselves in the situation where their debt repayments are more than half of their income,’ says Du Plessis. ‘To prevent this from happening, consumers need to get into a mind-set where they don’t take on debt unless they absolutely have to. You don’t need the new car, clothing-store account or DStv to have a happy, well-rounded life.’

Many South Africans are also big fans of microloans. Although these might not seem that dangerous on their own, every loan repayment means you have less money for living expenses and savings.



‘By saving or investing, you are instead paying yourself, because your money earns interest. People who manage their finances well know this: they will rather save for something than apply for a loan and make a creditor rich. Having a savings fund can also be a great safety net when you run into financial trouble or an emergency cost appears, such as car repairs,’ says Du Plessis. ‘It’s fine to spoil yourself once in a while, but people mustn’t let their lifestyle dictate their quality of life. Trying to buy a better lifestyle means you are more likely to find yourself in a dire financial situation,’ he concludes.



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