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How not to get a credit record

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money movement Afika Soyamba went from indebted to debt-free and has now started a campaign to help educate other young people about the power of investing  PHOTO: elizabeth sejake
money movement Afika Soyamba went from indebted to debt-free and has now started a campaign to help educate other young people about the power of investing PHOTO: elizabeth sejake

Johannesburg - Far too many 20- and 30-year-olds are struggling to meet monthly debt repayments, which affects their ability to break the dependency cycle and create long-term wealth. The debt invariably starts with student loans, but once these young people join the workforce, the temptation to take on consumption debt – which is effortless because of the easy access to store cards, credit cards and personal loans – is enormous.

As a general rule, for every R1 000 you earn, financial institutions will give you about R3 000 in credit. It is tempting, because that means you don’t have to wait to have all those things you always wanted. You can have them right now. Unfortunately, at some point you’ll have to pay it back – with interest.

Afika Soyamba found himself in this situation, a young man drowning in debt repayments, but with a dream to start creating wealth through investing. The difference between Afika and most 30-year-olds is that today Afika is debt-free.

Like many students, Afika had to rely on a student loan from the National Student Financial Aid Scheme to attend university, but it was the debts he started to accumulate in the belief that he had to build a credit record that really led to his financial predicament.

Fully aware of the risks of taking on credit, Afika was at first careful about how he managed his credit lines.

“While studying, I heard that I needed to build a credit record. I was told it would make it easier for lenders to give me money because I would have some kind of history. I opened a Truworths account. I made sure that every time I went to buy clothes on the account, I had at least half of the amount I was going to spend. That system worked fine for me and I never missed a payment. I was using my pocket money, but I missed out on drinking nights,” says Afika.

Over time, however, his credit lines kept increasing. He decided to “consolidate” his credit to a single credit card, closing his Truworths and RCS accounts.

“In my mind, I was still building a credit record. The first time I got a credit card, my limit was R2 500, and that was my choice. A few years later, I had a limit of R80 000, with a balance of close to R70 000 on the card.”

It didn’t happen overnight; it was a gradual decline into a debt vortex. Looking back, Afika realises a lot of his debt came from unplanned expenses and not budgeting properly. Like most young, black professionals, he was burdened with so-called black tax – the cost of being the only employed person in an extended family.

“There were unbudgeted trips home to the Eastern Cape and notorious funeral costs. I never drew a line when it came to helping friends and family out financially,” says Afika, who also found that airtime was burning up his cash. “I was that guy who would call every time I got a missed call or message, and I was using a lot of data. At the time, I had a cellphone contract, yet I was always paying extra every month.”

Apart from day-to-day spending, Afika also decided to buy a house and a car without understanding the full financial implications of maintaining them and all the other associated costs, such as insurance, rates, taxes and utilities.

Afika got to the point where he could no longer handle the stress of the debt he was building up.

“I always hated debt, and I was always stressing.”

But the real wake-up call was when he was paying close to R3 500 every month towards his credit card.

“It was just too much. I was at a point where I was paying into the credit card and, a week later, I was using the same credit card to survive.”

Afika realised the power of paying extra into his student loan and the effect that had on the balance.

“I started paying the minimum amount required when one starts working. It was so low, and the principal debt was not going down. I felt like I was going to pay the debt for the rest of my working life. I started paying more towards the debt and immediately saw I was doing something.”

This gave Afika a plan of action.

The journey to becoming debt-free

Afika’s first goal was to pay off his credit card. Credit cards, in particular, are a dangerous form of credit as they are, in effect, a revolving loan. This means every time you make a payment, that amount is available again as credit – you live perpetually in debt. Afika paid in extra each month and would then call the bank to decrease the limit so that eventually he would not have any credit available on the card.

Unfortunately, Afika had grown used to living a certain lifestyle, which was impossible to achieve without access to the credit on his card. He started using payday loans to survive. Then he received a substantial pay increase at work, which meant he could accelerate his debt repayments and survive without payday loans.

“I asked myself what it might be like to be debt-free. From there, I decided to try to be debt-free.”

Afika starting budgeting with 22seven.com, an online money management tool. “I also met a wonderful girlfriend. Having one girl meant less phoning for me,” laughs Afika.

By using the 22Seven.com budgeting tool, he was able to analyse where his money was going. On average, he was spending more than R1 000 on entertainment, R1 000 on eating out and R700 on airtime/data bundles. He was also spending far too much money withdrawing cash from ATMs.

“Once I could see how and where I was spending my money, I knew where I needed to cut back.”

Afika downgraded his bank account to reduce his bank fees and spent much less on airtime. He redirected the money he was saving to repaying his debt.

“I started to increase my car instalment, and seeing those bars in the graph [monthly debt repayments] going up did something to me. I was motivated to keep paying more, so I could get out of debt sooner.”

Today, Afika is consumer debt-free – the only money he owes is on his mortgage. He has paid off his car, owes no money on his credit card and is now investing every month. His quest to create a credit history nearly backfired. No credit history at all is far better than a negative one.

From debtor to investor

Inspired by his journey and determined to move from being a consumer to an investor, Afika joined Lerato Mahlangu to become the second member of the Power Mani Club.

What began as a campaign by Victor Kgomoeswana – radio host and author of Africa is Open for Business – to encourage investments is starting to become a movement for young professionals to learn more about money. Lerato, president of the Power Mani Club, has a degree in actuarial science and works in financial services, but describes herself as “an investor and aspiring author”.

Through the Power Mani Club, Lerato and Afika are hoping to create a trend of making it cool for young professionals to be debt-free and financially savvy.

“Our vision is to reduce debt and increase investments. We aim to break the stereotype of ‘lack’ that people often associate with someone coming from a so-called previously disadvantaged background,” says Lerato, who is also campaigning to educate young people about the power of investing rather than sticking to low-interest bank savings accounts.

“We want a social movement that everyone and anyone can participate in at any given time.”

To find out more about Power Mani, follow on facebook.com/PowerManiClub, visit the blog at powermani.wordpress.com/about, follow on Twitter @P0werMani, or email info@powermani.co.za

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