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Question:
I concentrated on paying off my accounts and haven't had any in a few years. I am at a point where I'm earning well and have no clothing or cell phone accounts. I am, however, paying off a credit card (old debt).

I tried to open an account at Game for a washing machine and have been declined even though I have given bank accounts, payslips and an ITC statement to them.

How can I go about getting a six month account to pay off something I really need without having to make a loan at the bank and pay high interest rates?

Answer:
When applied incorrectly factors such as consumerism, instant gratification and the ability to obtain high debt levels with relative ease can lead to disastrous outcomes for individuals, companies and even countries. The global financial crisis over the past two years has proved how this combination of factors, if not checked, can lead to massive economic pressures that can spell disaster for even the strongest world economies. Not to mention the millions of individuals who have been affected by the high debt levels and their inability to service this debt.

That being said, the ability to raise credit is often necessary and can be a valuable tool in modern society if used correctly and responsibly.

So how do you go about making the decision to raise debt and what is the correct tool for the debt required? The best way is to answer a couple of simple questions which will help guide you through the decision making process.

The first question you should ask is, "Should I rather save in order to make a purchase or should I buy it on credit?"

Very often our purchases are driven by emotion. We spend money only to regret the purchase later or find that the cost of a credit purchase far outweighs the benefit of buying the item immediately. By saving for an item over a few months you might find that you did not need it or that you appreciate the purchase much more after waiting. The benefit of paying cash for an item means that the cost is significantly lower as there are no finance costs. You might even be able to negotiate a better price for the item.

Should you require the item immediately and need to finance it, the second and most important question you should ask is, "Can I afford the item and the repayment responsibility attached to purchasing the item on credit?"

This question can only be answered properly if you examine your personal income and expenditure. This process entails detailing all regular monthly income (including once off and irregular income) received in a given month and then deducting all expenses from that income, leaving you either with a surplus or shortfall. Should a monthly shortfall exist, a very different issue would have been identified which we will not be discussing today. However, if a sufficient surplus is available to cover the monthly repayments of the debt required, only then should you feel comfortable proceeding with the purchase.

The next consideration you should take into account when deciding on debt is with regards to the proposed debt instrument to be used when making purchases. This is a very broad subject to discuss but, without going into great detail, the method of finance is usually dictated by the security being used as well as the purpose and the duration of the debt.

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