By Credit Health (www.credithealth.co.za)

Bigger companies like Edgars, Foschini, Woolworths and all the banks are members of the Consumer Credit Association and they send all their payment records to the credit bureaus every month. So if you miss even one payment, it shows on your record.

That’s not too serious, however, until you have missed paying for a few months or more. Then it starts to hurt your record.

  1. So the number one credit record polisher you can apply is regular monthly payments, made on time. If you miss a month, make sure you pay the next month. (You’ll start getting calls from the store or bank about now!)

  2. If you fall 2 or 3 months into arrears, creditors are far less likely to give you credit. So get up to date and don’t fall behind!

  3. Pay no less than the minimum instalment each month! (Before you apply for the account, make sure you can afford this amount!)

  4. To make sure you can afford your repayments, draw up a monthly budget for yourself and stick to it, shaving off unnecessary expenses if you need to. People who budget seldom get behind on their repayments. People who are really good at budgeting can even start paying off more each month and paying up their debts earlier – which saves an astonishing amount of interest (more about this elsewhere on this site!)

  5. Most people are carrying a very heavy debt burden – the average South African spends 75% of his or her take home pay on debt! That doesn’t leave much for anything else, and it makes you very vulnerable to things like a rate hike. And as for saving for your retirement, or reaching your dreams – at 75% you can forget it. You have to reduce your debt – and the best way to do this is to pay more than the minimum payment on your accounts. Do it one at a time – and choose the most expensive debt first. This is the one with the highest interest rate – if you’re not sure which one that is, get on the phone and find out! Tip: it’s certainly not your home loan, it’s probably not your car, it could be your credit card, or another small loan or instalment plan.

  6. Aim to reduce the amount of money that goes on debt every month to 30 – 50% of your after tax income. So if you get R5 000 a month after deductions, try and pay no more than R1 500- R2 500 on debt repayments. Seeing as home loans can be about 30% on their own, it means you need to tighten your belt, and pay off your other debts as fast as you can – one by one.

  7. If you are unable to make a payment due to unforeseen circumstances, talk to the bank or retailer concerned and make alternative arrangements to pay back what you owe. Remember that they may well accept reduced monthly payments spread out over a longer repayment period – whatever you do, try to pay them something every month, if only to show them your goodwill and establish a payment record in the event they decide to take you to court. It is best to get an agreement in writing with them, that they will not take legal action, for the period of the repayment arrangement. It must be in writing because otherwise they will never stand by their word.

  8. While you may not be able to afford the higher instalments and your account may not be getting paid off quite as fast as you’d like, so long as it is going down you are on the right track. Just remember that all your effort in paying off your debts will only work if you do not take on more debt. So, when you are tempted to buy, remind yourself that you are trying to pay off your accounts and that it will be worth it to be patient for a while!

  9. NB! No. 7, 8 and 9 do not apply to a debt on which there is already a judgment against your name! If you have what we call an old legal debt, you are really going to lose out if you pay it off in this way, through their collection attorneys. You will probably pay twice what you should! Many people valiantly pay these old debts every month and find that the balance never goes down and sometimes it even goes up! That’s because the costs are much higher than normal! You’re paying the lawyers now as well as the lender. So if you have an old legal debt, or a judgment against your name, speak to us about our Debt Settlement Plan™ and save yourself a lot of money!

  10. If for some reason the creditor is not prepared to enter into a repayment arrangement you should be on the look out for a letter of demand followed by summons from a court. It’s really tempting to ignore it and hope it goes away, but you can be sure this never happens and it just gets worse. So never ignore the summons. It always pays to defend the matter and appear in court. Very often the magistrate will force the creditor to accept a payment arrangement that you can afford if you show the court your monthly income and expenses and explain how you are trying to sort things out. Provided you show that you intend to repay the debt and have been doing your best to make at least some payments there’s a good chance the judge will be sympathetic. Remember to point out that you have been making payments and aim to increase them as you get more in control of your finances. The courts don’t always side with the big guys – often they would like to do more for the little guys, but if you don’t show up, they can’t. So pay something, every month, bring along a record of your payments, and your salary slips, and tell the judge your side of the story!

It’s really worth getting started on this plan because it will relieve the pressure and start to get you in a healthier position with your money. Good luck!