The credit card diet

Credit cards have fallen out of favour in the past 12 months as recessionary conditions have taken hold.

People are trying as best they can to rid themselves of debt and at the same time, banks are not particularly keen to lend money as generously as before.

For the first quarter of the year the value of total credit card advances fell by R200-million, according to data from the Reserve Bank, and this trend has continued into the second quarter.

According to a research report issued by Standard Bank, the slowdown comes on the back of a decrease in other loans and advances, which includes spending on credit cards and corporate credit. What the research shows is that borrowing has moved negatively by -1.9% compared with a mild growth of 3% in April.

The report further documents that in general consumers have been spending less after becoming maxed out during the conducive environment before the global financial crisis hit. ‘Exhaustive spending on credit has hit many consumers and a palpable slowdown in credit extended to the private sector has emerged.”

According to the managing executive of Absa credit cards, Doug Walker, the bank is still seeing a demand for credit cards, but it is declining more applications than previously and many customers are choosing to use debit cards or cash rather than credit cards.

Visa’s head of innovative payments, Nick Essame, agrees that consumers are moving towards other methods of payment . ‘Internationally, credit is still pretty hard to come by, but in South Africa we were in some ways ahead of the curve with the changes that were brought about by the National Credit Act,” says Essame. ‘There is a continued surge in debit and prepaid growth.

Prepaid cards are especially attractive to many people at the moment because they are completely self-limiting.” He says prepaid cards are being used as a way of introducing the previously unbanked into the formal economy.

With regard to the number of credit cards on the market, Essame says there has been a stabilisation in the numbers because people are no longer being tempted by as many new offers.

According to Nedbank’s head of consumer cards, Graeme Holmes, the bank is still approving credit applications but in many cases it is for lesser amounts than was previously the case. But it would appear that banks are starting to remove the squeeze. ‘We are probably granting or approving more credit than we were eight months ago when we cut back very dramatically,” says Holmes.

According to Darryl Lahner, head of credit risk at FNB credit cards, credit cards are the segment that generally feels the pain first and is the quickest to recover.

But the full impact of the credit card frenzy is still to work through the system. ‘We are still in the 2006 and 2007 accounts. We haven’t begun to write off 2008 or 2009 accounts,” says Walker

Should you cut up your card?
Credit cards are an efficient method of payment if used properly.

Here are some guidelines to help keep control of your card.

    1. Check what you are paying for your credit card. If you use your card only as an emergency measure, consider a card such as Virgin Money, which carries no annual card fees.
    2. If you don’t really need the credit but like the cheap banking, pay into your credit card upfront each month, then you know that the money you are spending is already in your account.
    3. Set up a debit order so that your credit card is paid off in full each month. This will also save you any penalties if you have a tendency to pay a day or two late.
    4. If you opt for a card with a rewards programme make sure you understand how it works and make the most of it. With Kulula, for example, it is easy to cash in your rewards for a plane ticket but remember that the ‘moolah” expires every six months.
    5. Consider opting for a rewards programme that adds to your savings, such as the new Old Mutual card.
    6. One of the best things about a credit or debit card is that the bank underwrites the purchases. So if the merchant fails to deliver on its goods or services you get refunded.
    7. Credit cards offer free travel insurance so it is worth booking your flights with your card.
    8. If you do get into financial difficulty, call your bank to make a suitable arrangement. Your credit card is not worth a 30-year judgment. — Maya Fisher-French

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