• Marinè van Brakel

Manage your credit before it manages you

The COVID-19 crisis is having a profound impact on South Africa’s economy with the GDP forecast to contract by as much as 7.1% in 2020, to an all-time low of roughly -8.5%. A wide range of industries came to an abrupt halt during the national lockdown, with businesses across the board struggling to stay afloat – mass job cuts, and for many others, pay cuts, loom. It is no surprise then that unemployment is expected to climb to as much as 50% in 2020 – it seems the only certainty is that financial uncertainty lies ahead for many South Africans.

According to Marinè van Brakel, CFO of local consumer finance business, RCS – a subsidiary of global bank BNP Paribas Group – it’s during economically uncertain times like these, that good financial management is more important than ever. “While you can’t control the global outbreak of a pandemic, or the economic fallout, you can control your finances and spending behaviour while making the most of the resources available to you.”

For better credit management during a financial crisis, van Brakel offers South Africans this advice: “As a starting point, it’s always important to know your credit score. A credit score shows you the strength (or weakness) of your credit report – a historical record of your habits and behaviour when it comes to payments – by rating your management of existing credit. The only way to know for sure whether you need to improve your credit management skills is therefore by finding out your score. This can be done by visiting a credit bureau like www.mytransunion.co.za or www.experian.co.za.”

While credit is a very real part of many South African’s lives, there’s usually room to cut back. The easiest way to do this is by carefully considering each transaction and only buy what is absolutely necessary says van Brakel. “If your household finances have been affected, you will have to make lifestyle changes and that means thinking very carefully before every purchase.”

Maintaining existing debt repayments during a financial crisis is important to ensure that one’s credit rating is not negatively affected as this will determine what credit you qualify for in the future. So make sure you stay on top of your existing financial commitments by making the necessary behavioural changes or by making an appropriate arrangement with your credit providers or creditors. Consumers should be proactive in managing their debt before collectors contact them. Some credit facilities will be willing to offer deferred payments or refunds on penalty payments, given the current economic landscape.

Van Brakel says it’s worth noting that taking a payment holiday is not always the best solution. “A payment holiday is simply an extension of when the debt payment is due – it is not a debt waiver – and usually comes at a higher cost of credit when the time comes to settle the debt. In some cases there is no alternative, but it’s important to weigh up the pro’s and con’s before jumping into what might seem like a great solution to an immediate problem.

“Now more than ever, it’s crucial to understand the benefits of your credit or store card. Look out for interest free credit options or rewards for good credit management. Most reputable financial services companies offer insurance linked to their credit products, including loss of income, that protect you against unforeseen circumstances. A reputable card product can be a lifeline during financially trying times, but only if you manage your credit responsibly, consistently, and smartly,” van Brakel concludes.