Redefine How You See Credit
Despite the negative connotations often associated with being “in debt”, when used responsibly, credit can add significant value by helping consumers manage their financial affairs and progress in life. Whether you’re making everyday purchases or need to cover unexpected expenses, the right kind of credit can assist you in an emergency or when money is tight.
Lynette Kloppers, FNB Premier CEO, says the ongoing debate around what makes good or bad debt is as old as the origins of money. Debt can either be classified as being a help or a hindrance, depending on how you use it, as well as its overall impact on your financial position in the long term.
“Taking the time to do your homework about different types of credit and how to use them effectively can help you avoid common mistakes that often leave consumers over-indebted,” Kloppers says.
How can FNB help you use your credit wisely? Kloppers unpacks some of the benefits that credit can bring: Use Money To Make Money: When used to buy an investment property that will later pay for itself through rental income, smartly allocated credit can help consumers build future wealth. Consolidate Your Debt: Having various forms of credit through several loans can become costly. Consolidating your credit allows consumers to combine the debts that they have with various credit providers into one convenient loan, thus saving you money on interest. As a consumer, you get to enjoy lower monthly repayments and gain more control over your finances.
Manage Your Cash Flow: Using short-term debt like your credit card to manage your monthly budget and still be able to pay off the debt interest free (within 55 days) can help you manage your personal cash flow. If you run out of cash towards the end of the month, an overdraft facility can come in handy to ensure that important debit orders are honoured. Further Your Career: If, for example, you work in an industry that requires you to constantly be on the road, using vehicle finance to purchase a car could potentially put you in an advantageous position by enabling you to do your job more efficiently, thereby eventually helping you to make progress in your career.
Educate Yourself: Knowledge is indeed power. Taking out a student loan to further your studies so you can graduate and secure a better job provides greater value for you in the long-term. Build Your Empire: Many aspiring entrepreneurs often have to take out a business loan to fund an idea that has potential to grow, with good returns. When the business finally takes off, the entrepreneur can start paying back the loan with the profits they make, putting the business on a good footing and setting it up for sustainable long-term growth.
“When using credit, it is equally important to carefully consider your needs in order to identify the right type of credit for your particular situation, to avoid paying more on interest in the long run. This is the biggest mistake that consumers make, often leading to good debt being viewed in a negative light,” Kloppers adds.
Many consumers mistakenly rush into taking out a loan without first considering their needs and the most ideal way to finance them. Being able to differentiate between needs and wants will help you determine whether you need a loan or an alternative form of credit. “Getting to grips with different forms of credit and how to use them effectively in line with your personal financial plan at a very young age can help you build a solid financial future,” Kloppers concludes.
Consulting your financial adviser is always a good place to start, as they will be able to give you insights on the various forms of credit available to you.