A Credit card: Is it worth it? - Hugue Nkoutchou CFP®

An increasing number of South Africans have credit cards. These include: bank’s credit cards and insurance company’s credit cards. This fact can partly be attributed to financial difficulties. There is a multiple of possible companies that offer credit card. Lastly a vast number of South African’s employees earn very little: A recent study showed that approximately 45 percent of South African’s employees aged 16 and above, in 2007, earned less than R2500 per month. However, for the credit card holders, this means more debts plus interests to be repaid in the future. Although the NCR (National Credit Regulator) is doing a great deal in protecting South Africans by preventing financial service providers to give consumers more credit if they cannot afford to repay; many individuals manage to find themselves in such a situation where they have accumulated a high amount of debts. The later is usually associated with a poor saving behaviour and can partly be contributed to individuals tend to leave beyond their means. A question that arises is whether or not an individual needs credit card? If yes, in which case?

An individual should take a credit to invest in something that increases in value. For example an insurance broker may take credit to buy a car as the car will add value to his life due to the fact that he or she can meet clients easily and thus makes more money. The car in such a situation is considered to be a “working tool”. An employee who earns a fixed salary can take a credit to buy a house as this usually increases in value with time, but should save to buy a car. The idea behind the discussion above is: when one takes a credit, one should make sure the return on the investment (or the money spent) is above the interest paid on the money borrowed. Thus, it is evident that a credit card should only be needed if one should invest that money in something that adds value or for emergency needs (for example, hospital fees) and not for daily expenditures as it is usually the case, for example to purchase groceries and airtime. Rather use a debit card or a cheque account.