January is typically a very long month for many South African families seeking to stretch December salaries until the first payday of the New Year, with the result that many consumers take out loans to see them through and add more long-term financial stress in the process.
According to Benay Sager, Chief Operating Officer at DebtBusters, there will unfortunately be even more pressure on consumers to borrow because of the impact of Covid-19 on the economy, and he cautions that they should first adjust their spending before borrowing more money.
Sager says consumers who are worried about whether their finances will stretch until the end of January should consider the following:
Don’t worry, act: Worrying about whether you’ll have enough money to pay the bills, prepare the children to go back to school and put food on the table will increase your stress levels, but won’t solve the problem. On the other hand, checking your bank balance and listing the expenses you need to pay before your January paycheque will give you some perspective on where you stand. The exercise should also give you some idea of where you may be able to save on unnecessary expenses.
Be responsible: To make ends meet and save some money in the short term, some people cherry pick which debts to pay in January and don’t pay others, hoping they’ll be able to make up the missed payments later. The problem with this approach is that while it may provide some short-term relief it ignores the long-term implications. Research shows that on average it takes people who skip December payments two years to catch up. Given the current state of the economy it’s now likely to take even longer.
Worse still, not meeting your financial obligations will negatively affect your credit score. A poor credit score makes it harder to get approval for loans, retail accounts, vehicle finance, rentals and numerous other financial services. It could also mean that you’ll be charged higher interest rates as you are considered a higher risk.
Get help if you need it: There’s another important benefit to taking the time to assess your financial situation – it allows you to get help before you get into irrevocable financial difficulty.