Good debt vs bad debt

Inflation, constant interest rate hikes and just the general difficulty of getting through the month nowadays have forced many South Africans into making debt. And while we may still have our parents’ voices drilling it into our heads that any debt is bad, this is not necessarily true. There is such a thing as ‘good’ debt, and it can actually improve your credit score, help you get better interest rates on loans and ultimately add to your life in a meaningful way.

Good debt

There are very few people who can put down cash for the big buys of life like a car or a home. Good debt is the kind of debt that increases your net worth or improves your and/or your family’s life in significant ways. It could include:

  • Student loan
    Student loans can be seen as an investment in your future if the qualification is going to help you secure lucrative employment. Be careful of investing tens, or even hundreds, of thousands into a qualification that may not get you a well-paying job, because you will still have to pay the loan off.
  • Mortgage loan
    Why pay off someone else’s bond when you can pay off your own? A mortgage is one of the best kinds of debt, because you are left with an asset that generally appreciates in value over time. However, it’s important to determine what level of expenditure you can afford – rather get the smaller house that you can comfortably afford than the bigger one that you can just barely make the payments for, or this ‘good’ debt can quickly dwindle over into the territory of a ‘bad’ debt.
  • Borrowing to consolidate debt
    A debt consolidation loan is good debt, as it combines many of your crippling debts into one, more manageable loan and repayment plan. It may also have a lower interest rate than the individual loans. This helps you clear your name and regain your financial future.

Gray areas

Oftentimes, a loan can be considered good or bad depending on your particular circumstances. For example, a vehicle loan can be seen as good if having the vehicle allows you to get to your job and avoid costly transport fees. But splashing out on high-end vehicles that are more for show than for getting you from A to B makes a vehicle loan a bad debt – especially if you are unable to afford the monthly repayments and end up defaulting.

Credit cards can be seen as good debt if you keep their use limited only to emergencies, and make sure you always pay them in full every month. Using a credit card to purchase frivolously like expensive clothing, holidays, eating out, etc is unwise and, because of the high interest rate, puts this kind of loan firmly in the bad debt category.

Bad debt

Bad debts are those that drag you down financially, and usually have high or variable interest rates. They are used for discretionary purchases or for things that lose value. But any debt that you are unable to afford in the long run becomes a bad debt. The obvious culprits include:

  • Clothing accounts
    Everyone needs clothes, but store accounts encourage unnecessary spending and often come with high interest rates. Don’t fall into the trap of spending too much on clothing you will get only temporary pleasure from, but will have to pay off long after they’ve lost their appeal.
  • Luxury items on credit
    It’s nice to have nice things, no one’s denying that, but you don’t really need the brand-name coffee machine, high-end holiday or fancy car. Lending money to spend on frivolous, unnecessary items will only hurt your financial future and bring you no long-term gain.

The takeaway: Good debt grows your financial wealth and future in the long run. Bad debt degrades your financial future and is often spent on unnecessary nice-to-haves. However, any debt that you cannot afford to repay becomes bad debt.



Vat Increase in South Africa

On the 21st of February 2018, Finance Minister Malusi Gigaba made the announcement that VAT was increasing. As of the 1st of April, VAT will increase from 14% to 15%. This will be the first increase in VAT in 25 years.

“We have increased personal income tax significantly in recent years, particularly at the higher income bands, and our corporate tax is high by international standards. We have not adjusted VAT since 1993, and it is low compared to some of our peers. We, therefore, decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances,” Gigaba said.

The real question is, who does this affect the most? Is it taxpayers? Or does this directly affect the poor, who are already suffering due to the R48-Billion hole in the fiscus which unfortunately for our pockets, needs to be filled?

Will the VAT increase help to make up the shortfall or is this government’s way of making up for it at the cost of the poor? We dig deeper at trying to understand what this means and how this will directly affect the average Joe.

VAT Increase Effects

According to pricing expert Billy Jourbert at Deloitte SA, not everything consumers spend money on will be affected. Certain items such as rent, accommodation, school fees, interest on loans and zero-rated foods will be exempt. Zero rated foods are basic items such as eggs, samp, rice, milk, brown bread, dried mealies, dairy powder blend, vegetable oil, dried beans, lentils, brown wheaten meal, mealie meal, fresh fruits, and vegetables.

Items which are not exempt from tax include your cleaning products and clothing – these are two items which affect everyone, rich or poor. VAT increase also includes water and electricity – basic needs households depend on. All these price increases are enough to make anyone worry, we suggest implementing the following:

  • Household: implement a budget for your family. This can include all your expenses, look at what you can live without and cut down on what you don’t need.
  • Leisure activities: instead of going out, consider staying in and cooking a meal as opposed to restaurants and takeout.
  • Debt: look at how you can pay back all outstanding debt, for example, pay off your credit card and consider closing it. Look at your personal loans, consider paying back more than the stipulated monthly premiums as this will reduce the number of payments you need to make.
  • Sin tax: consider cutting down on what you drink as your consumption directly affects your pocket.




A personal loan is a type of loan that anyone can take out and use for various personal expenses. These include paying for a wedding, a car, vacation or those home renovations you’ve been postponing due to financial burdens. How you choose to use it is entirely up to you.

Get a personal loan of up to R150 000! Over the years, personal loans have become a real financial option for consumers and the demand continues to rise. It’s a type of financing you can’t ignore and with a simplified application process – it’s the Smart Loan you can access at your fingertips

What’s so personal about personal loans?

A personal loan allows you to borrow a certain amount of money for a stipulated period of time and pay it back in regular monthly installments. The rate one pays back is based on credit score and credit history. We advise that you make sure that your monthly payments fit your budget.

Always look at the different loan rates being offered. Personal loans allow you to consolidate debt such as credit cards which in some cases can be paid off in a month or two. With a personal loan, you get to pay back a set amount for a set period of time. This makes it easy to structure a budget and work out a payment plan with a due date

Factors that influence approval for a personal loan

  • You must have a good credit score. The higher your score – the better.
  • Your employment is a relevant factor. You need to have a regular monthly income of at least R4000.00 or more.
  • You need to have a healthy annual income. The higher your income – the better your chances of getting approved. Loan providers will look at your credit report to check if you have a good repayment history. If they can see that you can make regular payments, then getting approved will be a seamless process.

Enjoy the convenience that comes with applying for a personal loan – apply today smart-loan.co.za




If you’re planning on taking out a personal loan, you’ve probably heard of the term “credit score” but what does it actually mean and how are you affected? Basically, a credit score is a number that will determine the likelihood of you paying back credit. Credit providers will look at your credit history when calculating a credit score as this alerts them to the level of risk involved in lending you a loan, a credit card, etc.

What to know about credit score

The quickest way to build a credit score from scratch is to apply for a credit card, open a clothing account, phone contract, or vehicle finance. By doing so, you’re building a credit history as many credit providers will not assist you if you don’t have a credit history. It’s important to maintain a good credit history as this will count in your favor when providers need to extend credit to you.

Having a high credit score is a good thing, it simply means that you are a low-risk borrower which makes you the ideal candidate for home loans and vehicle financing. With a bad credit score, you run the risk of being declined or higher interest rates which in turn affects the amount of money you need to pay back. Your credit is calculated using the following information contained in your credit report:

  • Account information
  • Payment history
  • Public records such as bankruptcy
  • Total debt
  • Number of inquiries for your credit report

Here’s what you can do to improve your credit score:

  • Always pay the full amount owed on all accounts every month and make payments on time as stipulated each month.
  • Work with your budget and learn to live within your means at all times.
  • Aim to keep credit repayments below 30% of your monthly income.
  • Never ignore a letter of demand for payment and the same goes for a summons to court for non-payment.
  • If you can’t make payments due to unforeseen circumstances, contact your credit provider and see if an alternative repayment agreement can be put in place.

Please bear in mind that registered South African credit bureaus will calculate your score differently based on the credit applied for.

Credit Score Range


Risk Band

767 – 999  Excellent

A consumer has a high probability of collection

Low Risk

681 – 766  Good

A consumer has an average probability of collection

Medium Risk

614 – 680  Favorable

A consumer has a low probability of collection

Potential High Risk

583 – 613  Average

A consumer has a low probability of collection

High Risk

527 – 582  Below Average

A consumer has a low probability of collection

High Risk

487 – 526 Unfavorable

A consumer has a low probability of collection

High Risk

0 – 486  Poor

A consumer has a low probability of collection

High Risk


Here’s where you can calculate your credit score for free:





Life is unpredictable and we constantly find ourselves in emergency situations where we need to apply for a personal loan. This is a norm for a number of families where things are constantly breaking or getting lost, and children need medical attention where a piggy bank might not be a viable choice. The obvious decision becomes a loan from a credit facility and a reputable one is a must.
The next step is choosing a loan that best suits your needs. There’s quite a wide selection of loans, however, these can be divided into two categories: secured and unsecured loans. It’s vital that you know the pros and cons of each as this will help you to choose the right one. The same could be said about understanding credit score as this affects both loan applications.

Secured Loans

Secured loans are protected by an asset or some form of collateral. This has to be an item which is owned such as a car or home as this can be security that the loan will be paid back. This makes secured loans ideal as these are safer for the lender and in most cases affordable for the one borrowing. Due to the low risk, there are lower interest rates. Should the borrower fail to make the payment, the risk is that the bank can claim the asset or collateral offered as security. For some, this means possibly losing a home or car.

Advantages of secured loans

  • Account information
  • Payment history
  • Public records such as bankruptcy
  • Total debt
  • Number of inquiries for your credit report

Disadvantages of secured loans

  • A home or car can be lost due to payment failure
  • Longer repayments periods come with higher interest charges

Unsecured Loans

Unsecured loans are not tied to any assets, this means that the lender takes the highest risk with this type of loan when compared to a secured loan. To make up for the risk, lenders charge higher interest which in turn makes it an expensive way to finance large expenses such as a house or a car. This also makes unsecured loans ideal for covering smaller personal expenses such as study loans or personal loans. Advantages of unsecured loans

  • Money for emergency expenses like unexpected medical bills where there’s no health insurance in place.
  • Money to pay for assets that can pay for themselves
  • Money for student expenses

Disadvantages of unsecured loans

  • Higher interest rates when compared to secured loans
  • Limitations to the amount you can borrow as these amounts are tied to what you earn




Thinking of buying a house? Here’s what you should know

Besides the fact that owning a house is one of the most rewarding things you could buy, property ownership gives you a sense of security that comes from being able to call a tangible entity your own. It is important to be aware of the risks that are involved when you are interested in buying property. This is so you can plan effectively for any challenges that head your way in the process.

Avoid taking on additional debt

When buying a home many people assume that banks only monitor their credit profiles and perform updated affordability checks prior to the home loan approval process. However, this process continues for at least three months until the property registration process is over. So, if you have taken on extra debt or you have defaulted against credit providers, this can result in the bank repricing and in some extreme cases – declining the loan altogether.

Home loan repayment defaults

Buying a house has risks that are largely financial. For one, there’s a risk of not being able to pay off your home loan, either due to bad financial planning, or circumstances that are beyond your control such as unemployment, divorce, or the death of a spouse or partner.

Defaulting on your home loan repayments could incur additional expenses and fees, on top of your existing mortgage amount. This can also tarnish your credit record. Worst case scenario, your home will be repossessed to settle your debt with your financial lender.

Tips on how to clear your debt

Get some help with Debt Consolidation, with over 10 million individuals who are experiencing the financial burden of having accumulated large amounts of debt that they are unable to clear. Debt consolidation is a debt refinancing process, which allows you to attain a single loan that repays many other smaller loans. This is helpful as is consolidates multiple debt repayments into one.

The value of your home

When buying a home you need to take into consideration that the value of the property could appreciate or depreciate over time. This is a financial risk that you will need to take as your property may depreciate over the time that you own it. Most homeowners purchase their properties with the intention of the property value increases over time, and should they sell, they make a profit – but this is not guaranteed. The land that the property is built on is the determining factor for how much the property is worth, as well as the location, supply and demand in the area, and general property market trends.

Tips for the value of a home

Do some research on which locations are in high demand, this applies to property that will retain its value in the future. Properties that are close to amenities such as schools, hospitals, and main roads are less likely to decrease in value over time. New property can also be a good investment as they may see good returns over long term, but this is dependent on other developments that are planned for the area.