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How to Manage Your Debt

A female financial coach giving advice to her client on how to manage personal debt in South Africa.

Most South African’s people have bad debt. According to Paul Slot from the Debt Counselling Association, 10 Million South African’s have bad debt – this simply means they have either missed more than three or more monthly repayments and on average have a total of eight loans each.

Peoples desire to want now and pay later creates the environment of debt. Money is the most commonly used form of exchange for goods and services. Virtual money is in the form of credit cards and credit agreements. If you are nodding your head right now, keep reading…

Few people, having just left school, have financial aid set aside for college or university education, and money to finance their first car. Therefore, borrowing money becomes inevitable and debt a reality. The largest debt that you are most likely to have in your lifetime is a home loan (when you buy property). Yet, on average, homeowners only reside in the property for an of average of 3 to 5 years before they sell it and purchase another property for upgrade or relocation reasons only to increase their debt. The same process applies to when financing a car… nobody wants to downgrade, so instead of lowering their debt, they increase it by acquiring a more expensive vehicle which puts them in an even bigger debt bracket. If you tick the below boxes for good management, then you are on the road to being DEBT-FREE or just plain DEBT-SMART!

Rules for good debt management

  • Credit Ts & Cs – Shop around for the best credit terms
  • Interest Rate – Always try and negotiate the interest rate
  • Fixed & fluctuating Interest rates – know exactly what you are signing when it involves anything that says “INTEREST RATE” – Always ask to explain fixed and fluctuating interest rates
  • Budget – Check your budget and repayment schedule – bite the bullet if you can’t splurge this month – think about the long term of turning your debt into hard earned cash that you can spend without looking at a “repayment schedule
  • Before signing any Contracts – Check for early settlement penalty clauses in the contract
  • Record online or file – Always keep a record of debt, bond contracts, surety agreements and contracts involving debt and create a file or a tab tab marked debt
  • Buying Intelligence – Never buy on emotion, buy on logic

A good reminder is to create a “GOOD” plan for yourself. GOOD is the acronym for Get Out Of Debt. Should your income exceed your expenses, apply 10% to 15% extra to your debt repayments in order to reduce the term; you will be amazed how much interest you will save. Remember, if you are in debt, you cannot save as debit interest always exceeds credit interest.

NB: If you ever find yourself in the situation, as we all do from time to time, where your expenses exceed your income, then you really need a plan to re-assess your budget. Invest in Yourself will be gladly available to assist should you wish to get in touch with us.

 

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