Belinda Beresford
Soon Christmas decorations will be out in the shopping malls heralding the advance of the festive season – and for many the much-needed end-of-year bonuses.
But ignore retailers’ attempts to whip up the annual Christmas spending frenzy. The best present you can buy is for yourself: use any extra money to pay off your debts. A good place to start is your credit card, a useful piece of modern life if you use it properly, and a millstone costing more than 30% per year if you don’t.
Banks say they are starting to see hints of strain among consumers after the interest rate hikes.
First National Bank says the number of credit card holders who have missed their first 30-day payment – regarded as a warning sign – is up on last year. In August this year, 3,03% of cardholders failed to make their minimum payment, up from 2,67% the previous year.
“Generally speaking, during 1996/97 there was a definite downward trend in bad debt provision, but that this trend is reversed in 1997/98 is evident.
“This is always a reliable and immediate indicator of the financial stress that increased levels of interest are causing the individual consumer,” the bank said.
Standard Bank declined to release details on percentages of clients missing credit card payments, but says the figures are not much different than at the same time last year. However, Standard Bank card division general manager Peter Abbott says the bank has started to see increasing numbers of people who have promised to make payments failing to honour their commitments.
Higher interest rates tend not to have a huge impact on the number of credit card users defaulting on their minimum payments since people can spread the extra pain out over months, and the minimum payment often remains manageable. Rather, card owners are affected by the impact on other forms of debt, especially on housing loans.
With bond repayments climbing rapidly, consumers begin to have problems servicing other debts, sometimes juggling their finances to payoff the most pressing debts by using un- utilised credit.
Absa says it is still too early to say whether an increasing number of credit card holders are missing their payments as a result of the interest rate hikes. The structure of credit card payments means there is a time lag between changes in people’s financial standing and the impact on credit repayments.
For example, spending over Christmas is only really reflected in February’s figure. This means the full impact of the higher interest-rate regime South Africans are suffering at the moment may not show for another month or so.
But if you think the pressure on your finances is about to become unbearable, talk to your bank. Banks are often willing to discuss rescheduling your credit card debt, although you’re likely to have your card impounded as part of the package.
After all, a bank would rather have a “live” debt being repaid slower – but possibly earning them more in interest in the long run – than no repayment at all.