Tight month, tough choices: Navigating Janu-worry while avoiding risky credit decisions

As the festive season fades into memory, many South African households are confronting the harsh financial realities of January, affectionately coined 'Janu-worry'.

The overlap of school fees, back-to-school costs, and daily necessities creates an intense financial squeeze that can pressure even the most diligent budgeters.

Recent data paints a stark picture of this month’s financial strain; credit card originations surged by about 30% year-on-year, as reported by TransUnion.

Furthermore, the non-bank personal loan sector is seeing the highest serious delinquency rate in over three years, with over 41.3% of borrowers finding themselves at least three months behind on repayments.

This surge in borrowing isn’t merely indicative of poor financial habits—it reflects a wider issue where wages struggle to keep pace with the spiralling cost of living.

Compounding this challenge is the prevalence of informal lending in South Africa—a risky avenue often exploited by vulnerable consumers seeking quick fixes to their financial dilemmas.

Craig Whittaker, Chief Operating Officer at Finchoice, emphasises the importance of responsible credit use, stating, “Credit can be helpful when it’s used responsibly. The danger is borrowing in a rush, without understanding the long-term cost.”

As consumers face tight budgets, it is vital to equip oneself with the knowledge necessary to avoid perilous borrowing practices.

Smart borrowing strategies for January

Before considering a loan, there are fundamental pointers to keep in mind:

• Avoid informal lenders: Although they may seem attractive for quick cash, informal lenders often impose exorbitant interest rates and employ dubious collection tactics. Registered credit providers, on the other hand, operate in compliance with the National Credit Act—providing essential protections for borrowers.
• Read the Ts and Cs: Understanding the terms and conditions is crucial. These documents outline interest rates, fees, and repayment obligations—failure to comprehend them can result in unexpected costs later.
• Understand your Pre-Agreement Statement and Quotation (PAQ): This document should provide a clear outline of the proposed loan amount, interest rates, and fees. Reviewing a PAQ helps ensure that the loan is affordable based on personal circumstances.
• Look at the full cost: Consider all associated costs, including interest and initiation fees. It is also wise to compare these costs against your monthly budget to determine affordability. A responsible lender may start you with a smaller loan, increasing it as your payment history improves.
• Stay in touch if circumstances change: Early communication with your lender can prevent a temporary setback from becoming a sustained issue. “Life happens,” Whittaker acknowledges. “Staying in touch can prevent a temporary setback from becoming a long-term problem.” Always keep your lender informed of any changes to your contact information or payment ability.

Janu-worry does not equate to financial failure.

When utilised judiciously, credit can act as a short-term support system rather than a lingering burden.

The essential takeaway is understanding when to use credit wisely, ensuring to borrow only from registered providers to maintain consumer protections throughout the process.

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