How do you rate on your credit health check?

The Credit Bureau Monitor for the first quarter ending March 2011, also issued by the National Credit Regulator, notes that there are 18,60 million credit-active consumers,  which represents an increase of 0,5% over the previous quarter.

What is concerning, however, according to Adrian Goslett, CEO of RE/MAX of Southern Africa, is that consumers classified in good standing increased by a mere 0,1% to 9,97 million, while number of consumers with impaired records increased by 20 000 to 8,63 million.

“It stands to reason then, that there are still many distressed households in the country who are battling to get on top of their debt situation. Financial security is something that cannot be counted on to last forever – unexpected things happen all the time that could upset your financial wellbeing. It is also not something that happens out of its own – financially secure people work at it, every day,” he says.

Thousands of people struggle with debt on a daily basis. Goslett says that those homeowners going through tough times need to do what they can to keep their credit score healthy, otherwise a temporary financial crisis could have severe implications in terms of restricting access to funds further down the line. “Being unable to purchase a home, car or any high ticket item because of a bad credit rating can be distressing,” he says.

Many a financial guru has said that financially sound people know their bank balance at any given time, have a clear understanding of their cash flow, and manage their expenses carefully.  Goslett advises consumers to undertake a credit health check several times a year to see where they stand in terms of debt versus income. This also includes checking their credit record every couple of months and developing a set financial plan to work off each month.

Goslett suggests the following steps to create a workable financial plan:
  1. Calculate your income
  2. Deduct your basis monthly payments such as your rent or home loan repayment, groceries and fuel.
  3. List all arrears payments, loans and credit commitments
  4. List the luxury expenses like beauty appointments, fancy dinners or movies.
  5. If you are spending more than what is coming in, cut down the luxuries.
  6. When you have a financial statement showing all incoming money and outgoing expenses, decide how much you can afford to pay off existing debts and tackle the smallest ones first, or the ones which are attracting the most interest.
  7. Don't be tempted to take another loan to pay off existing debts, rather find a way to pay them off by making arrangements with the creditors or finding ways of generating additional income
  8. Know at all times what you can spend, and try not to live above your means – something many South Africans are guilty of
  9. Develop a savings plan and put aside a set amount each month if you can afford to – an emergency fund will never go to waste
  10. Be aware of where you stand financially at all times so that you have enough time to develop a plan should something unexpected happen that threatens your financial stability

“Effectively managing your finances is essential to your financial wellbeing, which is defined as informed financial decision making, learning how to save, invest, use credit wisely, and plan for the future,” Goslett concludes.

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