View debt management tips below to stay in control of your finances.
Drawing up a monthly budget is a great way to create financial freedom. Here’s a few benefits of having a monthly budget:
- It helps you identify your long term goals and put a plan together to achieve them
- It assists you to not spend money you don’t have by showing you exactly what you earn, how much you can afford to spend and how much you need to save
- It prepares your finances for retirement by creating a structure of saving for long-term goals when you aren’t earning an income
- It helps you build an emergency fund (which should be a fund of between 3-6 months of living expenses) to help you mitigate a life crisis such as a lack of employment
- It helps you identify spending habits you can minimise to save money
Before your swipe your card, you should know when you will be likely to repay. If you are not repaying your credit card in full within the 57-day interest free period, interest will be payable which you will need to budget for. Determine if you can afford to buy the item at its cost plus the interest.
As with any debt, staying in control and maintaining a good credit profile is key. Stay within your limit and know how much you will need to repay each month based on your usage. Reduce your credit limit to one you feel more comfortable with if you are experiencing repayment difficulties. Simply call the number at the back of your card to reduce your limit.
Debt has a ripple effect across your entire financial life, including your credit score. A credit score is a rating which evaluates your credit worthiness. This information is used to determine the probability that you will be able to afford and pay back credit you’re granted. Credit scores are calculated based on your past behaviour with loans, credit cards, and other financial products and you can get a free credit report once a year from TransUnion.
If you’re an Absa transactional customer, you can get a mini credit report on WhatsApp Banking, on menu item 9. Remember, if you carry a high balance compared to the credit limit on your credit card from month to month, it will likely have a negative effect on your credit score — especially if you’re doing it with multiple cards.
If you’d like to become debt free, there are two ways of doing this. However, ensure that before you use one of these strategies you have sufficient funds for both your living expenses and emergencies that may come your way:
Start by paying up smaller debt like a short-term loan, while repaying the minimum balance due on your other credit products. The benefit of this approach is that once you have repaid smaller debts, you would have built up enough confidence to tackle larger debt.
In this debt strategy, you choose to focus repayments on the debt you have with the highest interest rate while paying the minimum balance due on your other credit products. The benefit of this approach is that you are minimising the amount of interest you are repaying, resulting in a reduced amount of time to repay your debt.
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