In recent weeks and months, the growing consumer debt crisis in South Africa has received much publicity.

First, there was news that the South African middle classes are struggling to repay their existing debts on time, then we heard that an increasing number were looking for a second source of income in order to maintain their current lifestyle, with 37 percent already working a secondary job. 

Clearly, many South African households are feeling the squeeze, which makes it increasingly likely that over the coming months and years, many may need to borrow money to make ends meet. But what avenues should they explore first?

Here’s our guide:  

Dip into savings

If you find yourself in a position where you are struggling to meet everyday living costs, then as much as you may not want to dent your hard earned savings, this is always the first place you should turn.

Your savings are free money. That means there is no cost of borrowing and no interest to pay. For that reason, you should always be prepared to dip into your savings before you ask for a loan, even if it’s from your family and friends. After all, that’s what savings are for.

It’s absolutely essential, before you agree to any loan, that you know exactly how the loan works.

A loan from family and friends

Borrowing money from family and friends might sound like the perfect low-cost solution if you’re struggling to pay a bill, but while you might be able to agree a cheap rate of interest, or even no interest at all, this source of finance is not without its flaws.

Relationships with family members and friends can often be tarnished by loans that are not repaid when expected or even not repaid at all. 

If you do ask a close friend or family member for money, you should make sure all the details of the loan are written down.

That includes the loan amount, the interest that will be charged, when the loan will be repaid and how much will be repaid each month. You should only agree to the loan if you’re sure you can comfortably meet those terms.   

Read more: 7 things I learnt when I applied for a personal loan

A low-cost Credit Union loan

If you have no savings and cannot, or would rather not ask family or friends for a loan, then the Credit Union is one avenue you should certainly explore. Credit Unions are not-for-profit organisations that offer personal loans and savings accounts to those who need them the most. 

The real benefit of Credit Unions is that fact that they are non-profit, which means the rates of interest you will be charged are likely to be considerably less than you would pay on a loan from a bank or building society.

You may also be considered for a loan even if you have an adverse credit record. 

Short-term loans

The last resort is to borrow on a credit card or use the services of a short-term lender. It’s absolutely essential, before you agree to any loan, that you know exactly how the loan works.

This guide from Wonga SA should help. You need to know how much interest you will pay, what are the charges if you miss a repayment and when the loan needs to be repaid.

You should only consider this option when you’re sure you can repay the debt at the earliest possibility and without incurring any additional costs.    

What are your go-to sources of personal finance? Have you ever borrowed from a family member – how did it go? Please share your thoughts with us here.