How to manage your credit accounts effectively

If you’ve taken on more credit over the last few years, such as a new home loan or cellphone contract, it can become challenging to keep track of everything you owe. To help you keep your credit accounts in good shape, we have outlined some good-to-know tips below.

Your credit accounts include any agreement in which you had immediate access to money and promised to return it over time. This may include loans, credit cards, and mobile phone contracts.

However, if you don’t stay on top of your credit accounts, you will face certain repercussions. The two main consequences are:

• Your debt will increase: Depending on your credit agreement, you may be fined for missing payments, which will increase your debt. If you have a credit card or store card and you don’t settle your account within the interest-free period, your debt will also increase.

• Your credit score will decline: If you prove to be an untrustworthy borrower, lenders will report you to the credit bureaus and your credit score will decline. This will then warn other lenders not to trust you with credit in the future.

If you want to maintain a good credit reputation and keep your debt in check, you need to keep a close eye on your credit accounts. Here are some important points to consider:

1. Keep your credit utilisation below 30%

Your credit utilisation is the ratio of your current balance compared to your overall credit limit. If you have borrowed R700 and your overall credit limit is R1,000, then your credit utilisation is 70%.

However, this is incredibly high, and you should reduce it to under 30% if you want your credit score to improve. You can do this by reducing your debt or increasing your credit limits.

2. Set up debit orders for recurring payments

The most effective way to ensure your credit accounts are paid is to set up debit orders. You can easily do this through your bank or lender.

Be aware that you may be charged a small debit order fee. For example, if you have a Discovery Bank Gold Credit Card, you will pay R3.75 for this service every month. However, this is a small cost to guarantee that your credit accounts will be taken care of every month.

3. Don’t borrow more than you need

Once you get a new credit card or store card, it may be tempting to spend more than you need. It’s easy to add small amounts to your monthly budget. However, these add up and, before you know it, you may be dedicating too much of your income towards servicing your debt.

The best way to keep track of this is to calculate your affordability before you add anything to your credit accounts. For example, imagine you earn R20,000 and your monthly expenses add up to R19,000. If you buy a car with a monthly instalment of R1,500, you will be R500 short every month. Therefore, you should rather consider a car with a smaller monthly instalment.

4. Use the free resources available to you

There are many online tools that can help you manage your credit accounts. ClearScore is one of them, which allows you to track your accounts, view your credit utilisation, and see your credit enquiries. You can access this anytime, and it will never cost you a cent.

On top of this, you can also join free Coaching Plans that will teach you how to manage your credit accounts effectively, and we have an article that can teach you how to improve your financial literacy.

Sometimes, in spite of your best efforts, you may become overindebted. This is when your debt becomes unmanageable and you end up missing several monthly instalments.

The best way to address this is to get professional help from a debt counselling company. They will pair you with a debt counsellor who will renegotiate your credit agreements, consolidate your debt into a single payment, and offer you an overall lower monthly instalment.

Alternatively, if you’re not struggling too much but you’d like to restructure your debt so that it’s easier to manage, you can take out a consolidation loan yourself and combine your debt into a single – often lower – monthly repayment.