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Debt and credit Managment

Living a debt-free life is almost impossible in our modern world. Borrowing money can be extremely useful as it makes life easier when we are short in cash.

If not managed properly, it can grow out of proportion. If we have limited money, we have to prioritise or we will fall in the debt trap.

Prioritising means to pay for the essentials (rent, food, utility bills) first. If someone is paying too much for debt, s/he cannot afford essentials and has to resort to credit to pay for groceries, that person is getting into deeper trouble every month.

An acceptable level of debt is when someone can pay her/his full instalment at the end of each month without cutting down on his basics needs. Always remember to pay off the debt with the highest interest rate first.

Getting out of debt - The starting point

1. Address the problem

Make a list of all creditors and calculate how much is owed to each of them. Identify those who have the highest interest rate.

2. Establish a budget

Firstly, identify the fixed expenses (e.g. Utility bills, rent, limited grocery expense, etc.). Spend less money especially on things that are not needed. After paying off fixed expenses, the money that is left can be used to pay the creditors monthly.

3. Discuss the situation with adult family members

Lack of co-operation from family members can give rise to obstacles. Discuss the situation with adult family members especially if they depend on your income. If the family is to get out of debt, all members should co-operate and agree on the budget that has been drawn and stick to it. Through discipline, debt can be lowered.

Question and Answers

What is Credit Finance?

Credit Finance is a licensable activity under Section 14 of the Financial Services Act 2007. The FSC Mauritius regulates credit finance providers. A Credit Finance provider can be defined as an entity providing loans and credit facilities to customers to purchase goods (for instance). This includes purchase of consumer goods. The duration of the loan is usually up to a maximum of 4 years. The minimum capital requirement is MUR 10 million.

This is an agreement between a buyer and a seller. The buyer receives the goods or services after the seller or credit provider has paid for it. In return, the buyer pays the credit provider over time and with interest.

Things to know when using credit finance

There are certain things to know when using credit finance

Read the agreements carefully and understand all the terms and conditions before signing.

Seek information from different credit providers and look for the best one which could suit one’s profile in terms of finance.

Know what should be done in case someone cannot continue with his engagement or is late with his payments.

Understand the situation, what it is going to cost and whether it can be afforded. Other things one should know are the total amount being borrowed, what are the repayments terms and what interest or fees that have to be paid, the penalties fees that are applicable for late payment and the duration of the payment and

Once the contract is entered into, it is important to abide by the terms and conditions of same.

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Conditions associated with Credit Finance

There are certain conditions associated with Credit Finance.

A Credit Finance company shall ensure that, prior to granting loans or other facilities to potential clients, the latter’s collateral (wherever applicable) and credit worthiness be properly assessed by the company. The willingness and ability to repay shall be a significant condition in assessing a potential client.

Other conditions are:

The possibility to keep on paying for the good or service even though the good is damaged or lost or the service is discontinued.

The Company may have the right to repossess the goods for non-payment of instalments depending on the terms and conditions of the contract.

Leasing Agreement

A Lease is an agreement between two parties for the hire of an asset. It is a contract between two parties where one party (the lessor) pays for the asset (the leased asset) for usage to another party (the lessee) for a specified period of time (the lease period) in return for specified payments (lease payments or rentals). ‘Liens’ are often placed on the assets during the lease period.

Lease can be finance lease or operating lease.

At the maturity of the Leasing contract (finance lease) the ownership of the leased asset is transferred to the lessee at a cost. As opposed to a finance lease, ownership in an operating lease is not transferred to the lessee (or user of the asset).

Conditions applicable to a leasing agreement

Leasing companies have to comply with the relevant laws and their licensing conditions.

A Lease Agreement or contract, as a minimum, should cater for certain contractual issues and should be explained to the lessee carefully.

The Code Civil Mauricien provides for the legislation surrounding finance and operating leases.

The lease period should be well defined. The Leasing company should also explain to the customer that it can recover funds from him, if the latter fails to keep the asset in fair condition, impairs its quality or fails to make payments as defined under the lease agreement.

In case of default or other contractual violations by the lessee, the company can also repossess a leased asset.

A Lease Agreement can be cancelled in case of default in payment, impairment to property or failure to perform major repairs as per the Lease Agreement.

Money Management

Money management is about understanding the difference between your needs and wants and spending your money wisely without incurring debt unnecessarily.

Budgeting and Saving

Today’s youth appear to be relatively savvy about money while some still consider that money management is not important.

Life Stages

There are things to know about financial literacy at the different stages of life

Scam

Financial Scams refers to dishonest, fraudulent and illegal schemes that attempt to obtain money or something of value from people.

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