Reports put South Africa’s household saving rate at 0.3% in the first quarter of 2022 – a 0.4% decrease from the fourth quarter of 2021. This finding, which reiterates earlier reports on the country’s dismal saving culture, is indicative of several mounting pressures on disposable income, which are exacerbated by various macroeconomic realities. While saving may be thought of solely in relation to traditional cash savings, there are a number of ways in which consumers can save by being more discerning around their use of credit.
This is the sentiment that Tonia Pavlou, Deputy Chief Financial Officer at RCS wishes to convey to South Africans.
As she highlights, the use of credit does not always have to become a slippery slope into over-indebtedness if credit active individuals make smarter financial decisions and prioritise personal debt management into their monthly budgeting.
Pavlou offers the following advice on how credit management can be leveraged as an effective way to save:
Cash in on credit benefits
Many South Africans have a surface-level understanding of how credit works – an amount is borrowed from a financial services provider and paid back with interest over an agreed-upon period of time. However, increased competitiveness in the market as well as changing consumer demands have compelled a number of financial institutions to add a level of incentivisation to their credit products.
For example, the majority of credit cards have interest-free periods, which allow South Africans to make repayments within a specific time frame without being charged interest. Furthermore, where traditional installment periods on store cards varied between six and 12 months, consumers now have a broader scope with revolving credit options and longer repayment terms.
Pavlou therefore encourages South Africans to scrutinise their credit products and use any benefits available to them as an opportunity to save. RCS store cards for example, offer up to 55 days interest-free periods, so when you make purchases on credit, budget in a way that allows you to pay off the amount in two manageable installments within the interest-free period. By using this benefit to cut the cost of interest, you can realise some significant savings.
Use technology to stay on track
Being smarter with your credit also involves leveraging technology to manage your account and keep track of your spending more effectively. When you apply for credit, ensure that the relevant provider has an app or online credit management tool that you can use to check your balances, pay your account, manage your details and access cash using your card where necessary,
Rather than waiting for your statement on a monthly basis, put regular reminders in your calendar to login to your credit management apps and review your running total. You could also monitor your credit spend using a spreadsheet which allows you to check spending against a set limit per month. By doing this, you can ensure that the spending limits you have budgeted for are adhered to and that you don’t accumulate excess credit by not monitoring your spend regularly.
Optimise rewards programmes
In the interest of customer retention, the majority of South African credit providers have implemented well-developed rewards systems for their clients. These programmes offer discounts on credit purchases, member-exclusive offers, promotions, and cashback incentives. These rewards programmes provide consumers with ideal opportunities to save by spending strategically.
Optimise the rewards programme offered by your credit providers. If by making credit purchases you qualify for a store discount, you can leverage that discount to stock up on essentials that you would otherwise have used cash for, or to saving money on a birthday gift, for example.
If a promotion expires within a certain time, ask yourself whether buying goods now that you had planned to buy in future can save you money in the longer term. Once you’ve answered this question, choose which promotions to capitalise on based on future potential savings. Thinking in this way will enable you to become a more strategic budgeter.
Your credit score could activate long-term savings
Planning for the long-term is part of good budgeting, and there are significant savings benefits that maintaining a good credit score can offer.
In essence, a consumer’s credit score is determined by an algorithm that evaluates how well a consumer manages their credit by paying their outstanding debt timeously and managing their personal debt-income ratio.
Consumers with good credit scores: which are categorised between 650 and 669 in South Africa, are more likely to be pre-approved for future loans and credit products. They may also be eligible for lower interest rates on credit cards and loans as well as lower rates on products such as car insurance.
For this reason, as Pavlou concludes, “it is in the interests of all credit active South Africans to leverage their credit scores as a way of saving money in the long term. Ultimately, moving away from the need for instant gratification towards a mindset that considers the future implications of credit is the most effective way of maintaining financial wellness and optimising your savings.”