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• Improve your credit score

• Free yourself from debt

According to the Credit Bureau Monitor’s 2011 fourth quarter report, only 10.41-million of the 19.34 million credit-active consumers in South Africa are classified as in good standing. The report reveals that the number of consumers with impaired records increased by 100 000 to 8.93-million during the last quarter of 2011. It also reveals that the number of accounts increased to 67.53-million and, of those, 16.91-million accounts are impaired.

According to Henry van Deventer, Financial Planning Coach at acsis, these increasing levels of debt are extremely worrying for a country like South Africa which has a very high unemployment rate. He also points to the Reserve Bank’s Quarterly Bulletin, which recently reported that household spending rose five percent last year, the strongest annual increase since the 5.5 percent recorded in 2007 before the start of the global recession. Van Deventer says that the rise in spending and increased debt can potentially result in financial disaster for consumers.

He says that consumers who are caught up in revolving debt know firsthand of the damage that can result.

"Calls and letters from creditors are only part of the problem. Each monthly payment not made in agreement with the credit card agreement causes damage to a consumer's credit record. In addition, finance charges, late charges and over-limit charges combine to actually increase the size of the debt each month."

Van Deventer warns that many consumers in this situation are not aware that they have impaired credit records, or are in this position as a result of "minor" infringements. "Nevertheless, the result is often the same - a bad credit rating or an adverse listing can seriously hinder a consumer’s credit record going forward, which can affect many financial transactions.

"When providing finance to consumers for a vehicle, home loan or a personal loan, banks look to ensure that their investment is safe. To increase the chance of securing finance, consumers should ensure that a clean credit record is kept at all times."

He also advises that consumers know the difference between "good debt" and "bad debt", and how to avoid the bad kind.

"Good debt is usually investment debt that creates value; for example, student loans, home loans and business loans. The purchase of disposable items or durable goods using high-interest credit cards and not paying the balance in full at the end of the month is known as bad debt."

Van Deventer explains that debt is often a continually-worsening spiral that consumers cannot control and then get stuck in.

"Once in it, escaping the vicious cycle of debt can be daunting. It is therefore important to seek impartial and professional advice at an early stage if debt problems do arise. Debt levels need to be controlled from the beginning as often debt can become unaffordable if there is a change in circumstances such as the birth of child, unemployment or divorce."

Article continues on page two: advice to keep a healthy credit score...