Plastic made more elastic

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Consumers need to read the small print before signing

The pressure is mounting on consumers to cancel credit cards asthey buckle under the high interest rates.



But, there could be options other than just cancelling creditcards.

As banks feel the strain to protect the vulnerable industry, creditcards continue to enter the system each year and household debtshows no sign of slowing down its rise.

Rajeen Devpruth, supervisor of the National CreditRegulator’s regulatory division, said that credit cards arethe most expensive form of lending.

He said: “Banks are now allowed to charge as much as 36percent on debt.

‘‘While I can’t give you an exact figure, morepeople are getting into the NCR’s debt relief programme thisyear than last year.”

Debt counselling services have been available from June last yearto consumers who are unable to honour in a timely manner all creditagreements they entered into.

The National Credit Act makes provision for the registration ofdebt- counsellors to assist over-indebted consumers. Debtcounsellors are required to undergo training approved by the NCR.

A number of banks are altering their credit card offerings in aneffort to keep people interested in their products in spite ofrising interest rates.

Although banks insist that they are encouraging responsiblespending, 50 new credit card products and 30 new co-branded creditcards (such as Virgin Money) were launched last year, according aEuromonitor International report.

Barret Whiteford, head of marketing at FNB, said the bank had keptthe same number of credit cards since last year, but the amount ofdebt had increased by three percent over the past 12 months.

The average FNB customer spends about R2000 per month on credit.

Nedbank’s head of consumer card services, Graeme Holmes,said: ‘‘The number of credit cards in circulationcontinues to increase, but this increase is slowing as people feelthe pinch of higher interest rates and costs of living.”

The NCR will be publishing a full report on the credit industryshowing the full extent of credit usage conducted by creditproviders across the economy.
This report, which forms part of the N C A , will be ready“in the near future”, said Devpruth.



How to get the best value out of your credit card



If possible, avoid using a credit card altogether. Credit cards arean expensive way to transact and by taking now and paying later itis easy to spend more than you can afford.


Try not to be paying for something after you’ve stoppedenjoying it. So, it may be alright to borrow to pay for large itemslike a fridge (which should last many years), but try to avoidborrowing to pay for everyday items, like groceries.



Shop around for a credit card with the lowest debit interest rate.This is the interest that you pay on your outstanding balance, soif you don’t settle what you owe at month end, youwon’t have the interest piling up. Debit interest rates varyconsiderably from card to card, so spend some time finding thecheapest available option.



A shiny gold card will impress your friends, but ask yourselfwhether the status is worth around an extra seven percent. Goldcards are more expensive than standard credit cards, so only useone if you are sure that you will use the added benefits that comewith the added costs.



Credit cards are great for allowing you breathing room, butdon’t push your luck. Pay off what you owe at month end toavoid the interest piling up. More and more South Africans arefalling into arrears through credit card debt, so in order toremain financially healthy, ensure that you pay off exactly whatyou owe at month end.



Don’t forget about things like transaction costs and annualfees. Many credit cards don’t charge annual fees, so if youare paying out a large sum to use your card, shop around for a cardwith little or no fees.
Never withdraw cash using your credit card. A normal credit cardpurchase gives you an interest free period during which to pay offwhat you owe, but by withdrawing money using a credit card you areeffectively taking out a loan and will be charged interest from theminute you withdraw the cash. Not only are the withdrawal chargesmore expensive than on an ordinary bank card, but you will bepaying interest from the minute you withdraw money. A normal creditcard purchase gives you an interest free period during which to payoff what you owe, but by withdrawing money using a credit card youare effectively taking out a loan and will be charged interest fromthe minute you withdraw the cash.

Set up an Automatic Payment Order for the day after your salary ispaid, to make sure you remember to pay your balance before the duedate to avoid or reduce finance charges.

Consolidate your debt by transferring your balance from othercredit and store cards to one credit card. This is called a‘balance transfer’.

Credit cards can be used to save surplus funds – your creditcard can be used as an effective savings mechanism which providesenhanced flexibility and accessibility in managing your savings.

Additional benefits, such as free travel insurance, are offered oncredit cards while the garage card functionality eliminates theneed to make cash payments for petrol purchases.