PAYMENT PITFALLS AND DEBT DOWNFALLS - PART 2

Last week we discussed a lack of financial management, signing surety, sudden expenses and worrying about social status. This week we compound on that list with some more points to consider to prevent you from being put in a position that is vulnerable to accumulating debt:

PAYMENT PITFALLS AND DEBT DOWNFALLS - PART 1

No one ever plans to fall into a spiral of debt, but sometimes challenges arise that cause the debt to build up around you before you have even realised how bad it is. This puts you in a debilitating position that can be difficult to emerge from. So, here are some points to consider to prevent you from being put in that position in the first place:

TEACHING YOUR CHILDREN TO WORK WITH MONEY

Every parent wants the best for their children, and the best we can give them is a sure footing in life. One of these areas is intrinsically linked to how they will perceive value in others, value in themselves and the value of things around them.

It is hard for children to understand the concept of value for money when they have not worked to earn the money for themselves. When a younger child goes shopping they are easily drawn to everything that piques their interest, followed by a torrent of tears if they don’t get what they desire.

So, how do you teach a child the value of money?

PAYING OFF CREDIT CARD DEBT

With festive season celebrations now a distant memory and all of the leftovers hopefully eaten, something still remains for the majority of South Africans - a looming credit card debt! It doesn't have to linger for long but getting out of credit card debt requires a realistic goal and a firm resolve. You will have to monitor your progress regularly to minimize your pitfalls and motivate yourself to keep on track.

A FRESH START, TO YOUR CREDIT RECORD

Having an impaired credit record is an affliction suffered by almost half of the 21 million consumers in South Africa. This ranges from consumers with defaults, judgements, administration orders and consumers who were three months or more in arrears with account payments.

Recently, between 1 April and 31 May 2014, the South African government implemented a credit information amnesty that benefitted at least 3.1 million consumers.

DON'T FALL INTO THE DEBT PIT IN THE NEW YEAR

UNNECESSARY LOANS IN JANUARY

At the start of a brand new year many South Africans face a long wait for salaries at month-end and overspending during the festive season leads to borrowing to cover small shortfalls, which may quickly snowball into a bigger problem.

"Many people think that borrowing money to help them get through the first few months of the year will be a quick fix solution, however, taking out a loan or using credit cards to help cover short-term expenses can escalate into a big financial problem and may even result in being blacklisted if not managed properly," says Eunice Sibiya, Head of Consumer Education at FNB.

DON'T FALL INTO A DEBT TRAP THIS YEAR

Prices are not escalating, they're rocketing.  A quick glance at my article on inflation over the past three years confirms this.  Escalating is a generously understated assessment of current economics.  What this means is that prudent financial planning is now even more necessary than ever before!

Analysts are warning South Africans against falling into the debt trap.

Automobile Association Spokesperson Gary Ronald has warned motorists that they can expect the fuel price to peak at about R13.50 to R14.00 per litre this year, with a chance of the pump price spiking to R15/l depending on politics and the US economy.  With many of us already sitting with tightened financial belts, this is of high concern.  The natural reaction is to increase our debt when things get too tight...

Fuel costs in early 2009 were, when at the lowest point, in the region of R5,70 per litre.  Three years on, we're paying more than double that.  If the above predictions are accurate, we'll be paying triple, in just three years.  This money either has to come from somewhere (we plan for it) or cut the expense (wiser spending).

PLANNING AHEAD

Whilst the media releases information that will hopefully illicit panic, I hope this information will incite planning!  The petrol price increase and the 8% increase in electricity means that our budgeting and financial plans need to be tailored to the new economic factors that effect our daily spending habits.

Our personal financial situations will only suffer if we don't engage with our portfolios and allow ourselves to be flexible with our goals.  It may mean that paying off your bond will take a few years extra, but if you're aware of it, you can make the necessary adjustments to your spending plans.