As much as RCS is about shopping, we’re also here to help you keep your credit in a healthy state.
If you have a large expense coming your way and need to figure out how credit can help you manage that expense, here is a simple guide:
As a rule, if you know how to pay for something, you can afford it.
To get an idea, you need to calculate how much money is coming in, how much money is going out and then see what is left.
In the finance world, “what is left” is called “disposable income”.
HOW TO CALCULATE YOUR DISPOSABLE INCOME:
1/ Calculate your average income
Identify all the money that is coming in every month. This could be from a number of sources:
Once you’ve worked out what comes in every month, add this up.
Remember to count money that comes in monthly and not once-off payments. Even if you don’t know the exact amount, you can use an average. If you are not sure, it is better to be conservative and use a lower amount. That way, if you get more money, it’s a nice relief!
2/ Calculate your average expenses
Identify all the money that is going out every month.
These are all the expenses that you are already committed to. They could be:
Next, you add up all your expenses.
It’s important to be realistic about what you must spend; it’s easy to forget those unexpected little expenses.
3/ Compare the numbers
Take the amount for the income and the amount for the expenses. The difference between the two is your disposable income.
There are 3 possibilities:
Income – Expenses = Disposable income
The exact amount of your disposable income is what you can afford. Your disposable income amount can be used for a new purchase. Of course, it’s always best to have some disposable income left, so try to avoid committing all of it to new purchases. Also, for good debt management, consider using that bit of extra cash to pay off existing debt.
Now, let’s see how to finance your large expenses.
The purpose of using credit is to help you space out your spending so that it is easier to manage. It also helps improve your credit score.
Situations where it is relevant to take on credit include:
The monthly repayments fit into your disposable income.
You have completed repayments in time to make a repurchase (for example, if you are paying college fees, you need to be able to repay within a year to be able to pay the next year’s fees).
If your income and your expenses are almost the same, that means you don’t really have any disposable income. It is time to be more cautious and to focus on how to improve your affordability.
We all think about ways to increase our income, but we can also look at ways to decrease our expenses. Find ideas on how to stretch your rand and get more out of your hard-earned cash.
You should only consider taking on more debt if there are exceptional circumstances and you know that soon there will be more money coming in or less money going out.
If your expenses are more than your income, you have negative disposable income. You need to manage your expenses in a way that is more in line with your income. There are 2 main scenarios:
If you already have a lot of credit and are in a situation where you cannot repay your debt, the first thing to do is talk to your creditors.
If they know about your situation, they can create a plan for you and reorganise your payments. It’s much easier if you talk to them as soon as you realise there is a problem rather than waiting until it gets so bad that they have to start legal procedures to recover money.
Why not read our article on how to manage your payment difficulties and get in touch!
If you feel that the only way to pay your debt is to get into more debt, it means you are in a debt spiral. In that case, you need to seek assistance and look for debt-relief solutions.
If you don’t have much credit but still have higher expenses than income, you need to find out how to manage your expenses in a better way.
We do our best to provide you with all the information you need. If we missed something, please let us know below and we will respond shortly.
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