A successful credit application does not mean you can necessarily afford the car, house, credit card, clothing account, personal loan, or whatever it is you're applying for credit for.
Former employee at a debt counselling firm Scelo Hlophe made this point on Twitter:
Just because you do qualify for a vehicle finance, Home loan, Personal Loan, Credit Card, Overdraft, Clothing account, does not mean you can afford it. Banks would never tell you this because that's their mandate and that's how they make money.— Scelo Hlophe (@Scelow_h) May 6, 2018
"It's the truth," said debt counsellor and clinical therapist Stephen Mulima.
"The thing is when you apply for anything on credit, the creditors deal with whatever expenses are registered at the credit bureau," Mulima explained.
He noted, however, that some people may downplay their financial responsibilities or are not completely honest with creditors about their expenses in order to stand in good stead for the credit — a choice he believes hardly ever serves people well in the long run.
"A person may think in a few months things will be better financially and so they will be in a better position to afford whatever it is they lied to get credit for — yet they fail to calculate how a car, for example, complete with insurance and petrol may shoot their expenses up. They fail to take to account of petrol price increases, and other living costs that they may go up unexpectedly."
Hlophe made an example of a previous client , who earned R25,000 per month after deductions, but appeared to be in way over his head.
There was this client of mine at my previous job, he was earning around R25K Net. His Vehicle was about R6700 and his bond was around R8000, Credit Card with every bank and to top it off, an overdraft.— Scelo Hlophe (@Scelow_h) May 6, 2018
On his payday, the Overdraft would take all of his salary and he would have to start at the bank and transfer his overdraft to his account so that his debit orders would run. After paying for all his debts he would be left with less than R1000.— Scelo Hlophe (@Scelow_h) May 6, 2018
"This is not surprising. We see this constantly with clients," said Mulima, who added that most of them have no savings for rainy days, and find themselves having to turn to creditors in emergencies. "Some do not take care to even have life or funeral cover, and they live paying off one credit card with another."
Hlophe also pointed out that the pressure to live a certain lifestyle as one of the reasons why some people, although they earn relatively well, are in debt.
Mind you, this guy was 24 at that time. He would blame peer pressure for being in this situation and wanted to match up with people who could afford everything they have.— Scelo Hlophe (@Scelow_h) May 6, 2018
Mulima also made a point about microlenders, who grant credit at maximum interest rate. "Unfortunately, microlenders do that. Remember, with each credit there's a benchmark with interest rate, and microlenders have been known to charge exorbitant interest rates — as much as 30 percent. Yet people desperate for cash — or perhaps not literate in matters of credit and interest rates — don't compare their options, but just sign on the dotted line."
This is why, he argued, some people find themselves in a perpetual cycle of debt, as the interest rate was high and they had no idea.
Stay away from debts,— Scelo Hlophe (@Scelow_h) May 6, 2018
Stop glorifying debts,
Stop trying to impress people, trying to fit in with people who afford can afford their lifestyles,
Think deep and hard before you apply for credit, ask yourself if you really need that debt.
Cut down on things you do not need.— Scelo Hlophe (@Scelow_h) May 6, 2018
Stay at home if you can't afford to eat out or party every weekend.
Cancel that gym membership if you don't even go to the gym.
There is absolutely no need to wear expensive brands if you can't afford them.
Asinandaba thina ukuthi, what car you drive, where and how beautiful your house is, which expensive brands do you wear from clothes to timepiece you own.— Scelo Hlophe (@Scelow_h) May 6, 2018
You know your situation, only you are liable to meeting all your financial obligations.
"People end up in psychiatric institutions because of stress. I have seen it. We need to take financial matters very seriously, and as much as possible, be realistic and responsible with our finances. We also need to be very careful of credit, and do as much research as possible — ask questions — before we sign anything," concluded Mulima.