Cape Town journalist Jo Kromberg last year used the extended credit on her credit card to pay for an overseas trip. She was told she had to repay the money over a set number of months.
After being abroad she returned and went about her normal activities.
Every month she received an account from the credit card company detailing what she owed. After a few months she received a nasty letter telling her that her card was being withdrawn and what the consequences would be if she did not pay up.
The problem was that no one had explained to her that she had to repay the loan in equal monthly instalments.
She thought she could repay the entire debt in one lump sum.
She immediately settled the account, but she feels angered that no one explained to her exactly how the system worked. As a result she came close to having a besmirched credit record.
She, however, is one of the fortunates. Banks and major shops have been handing out credit cards of various types in recent years with many people running up debts they cannot afford to repay.
In 1995 it is estimated by industry sources that the number of credit cards in circulation doubled and South Africa went on a massive "spend-now, pay-later" spree. The extent of the spree had Reserve Bank governor Chris Stals issue a warning last week that if the spree continued the security of banks could be threatened.
However, Peter Abbott, assistant general manger of the Standard Bank credit card division, says that more stringent credit controls are now being applied up on the issuing of private label store cards with on-going consumer education about the use of cards and about debt.
With normal credit cards, about 50 percent of all applications are rejected by Standard Bank. The figures for the store cards (private-label cards) underwritten by Standard Bank vary according to the contract with a retailer. On average rejections are now about the same as for credit cards.
Abbott says a high percentage of people settle their debt within the interest free period while others are prepared to pay the high interest charged on credit cards.
Store card interest rates can vary from about 25 percent to the Usury Act maximum of 31 percent. The high rates charged by both store and bank cards make them one of the most expensive forms of debt