As South Africans faced with a weakening economy we find that, as the years go by, it becomes harder and harder to avoid credit. Without a credit history for reference, it is impossible to take out a loan for a house or car, which are good examples of purchases that most consumers cannot simply make once off, in cold hard cash – for reasons such as these, credit cards play a big role in the way we spend, as well as in the way our financial identity is formed.
Unfortunately, credit cards can also enable spending habits that are not in your best interest. The false sense of being able to afford something by simply using a credit card has been attributed to many individuals becoming over indebted in South Africa. Though credit cards can be convenient, there are certainly downfalls, one of which includes high interest rates on monthly repayments – consumers that are used to shopping, going out and getting through a month on credit do not realise that they are actually paying back a large amount on interest, effectively losing money and paying more than they should for the simple convenience of not having to fork out cash for a purchase, or save for a fancy date or special occasion.
Another downfall to utilizing a credit card is that consumers can quickly develop a habit of overspending, as the immediate impact of money lost is not felt as it would be with a cash purchase. When you spend with cold hard cash, you are able to justify certain expenses more clearly and can also avoid purchasing unnecessary items, because you are more aware of your financial restrictions. Our Less Debt team of financial advisors have identified that overspending on credit cards is a common habit in many of our over indebted clients and as such, we encourage consumers to proceed with caution when spending with credit instead of cash.
For individuals who have great self control and are not currently weighed down by debt or multiple financial obligations, a credit card can prove to be useful in some ways – you are able to build a good credit score if you use your credit card well and don’t have to worry about travelling with cash and being liable for money that may go missing or get stolen. For individuals who are weighed down by financial obligations and already have a selection of accounts and payments to worry about every month, credit cards are not advisable and can easily have the opposite result – just a few late or missed credit card payments can tarnish your credit score for years to come and have a negative impact on your reputation with money as well as the wellbeing of your family.
When deciding whether to make us of a credit card vs. cold hard cash, it is almost always better to use cash and avoid credit cards. If you are currently facing credit card debt, check in with Less Debt for professional assistance and transparent solutions.