2 July 2019
As the economy gets tighter, millions of South Africans are struggling to meet their monthly debt repayments. But the good news is, it’s possible to end debt anxiety. Nicki Blignaut, Sanlam Senior Financial Adviser, and Judy van Freden, Senior Financial Adviser at Future Planning BlueStar, are here to help you put together a plan that works, as well as provide guidance so you can avoid future traps.
“Draw up a monthly spreadsheet with a list of all your debt as well as the monthly repayments of each one,” suggests Blignaut. Take advantage of your free annual credit report (offered by TransUnion) or sign up for ClearScore which is 100% free with unlimited credit reports.
“Once you have a list of your debt repayments, remember to contact your lender to check for the interest rates you are paying on each one in addition to your payment,” continues Blignaut.
“Start by paying off the debt with the highest interest rate first,” says Van Freden. “If you have a few rands to spare at the end of the month (after your budget), add more to your monthly repayments – R100 can go a long way.”
Keep track of how far you’ve come along so you can see your progress. Meeting your debt obligations will also help you gradually improve your credit score.
Sometimes debt can be overwhelming and it seems like you’re drowning in a sea of unpaid accounts. But with developments like debt consolidation, you are able to “combine all your debt into one lump sum via a debt consolidation loan,” explains Van Freden. Instead of paying off different credit providers with different interest rates, you would use this loan to pay all your debts and then focus on repaying one loan with one set interest rate.
“Debt consolidation can be a good idea if you receive a low interest rate for your consolidation loan (which is treated as a personal loan), but this is all dependent on your credit score,” adds Blignaut. “If you have a low credit record, you may have to opt for debt review where a third party takes over your finances and makes payment arrangements with your different credit providers,” continues Blignaut. This should be your last option, as it has a “negative effect on your credit rating,” she adds.
Keeping up with the latest trends is costly and is a sure debt-trap. The best way to avoid falling into debt is by “creating a realistic budget that includes everything that you need to pay for – even the smallest things like bank charges,” says Blignaut.
To create an effective budget, you’ll need to be honest about your finances, take your debt into account as well as other ad hoc costs (family commitments, entertainment, subscriptions etc.). “Avoid making big-ticket purchases unless you have budgeted for them and have also taken care of your important financial commitments first,” adds Van Freden. Before you buy the next pair of designer jeans, ask yourself: “Can I really afford these?” If you have to borrow to buy them, then maybe you can’t.
Van Freden refers to bad debt as “anything with short-term payments but high interest rates such as clothing accounts, credit cards and payday loans, as the interest on these can be astronomical.”
If you already have any of these debts, Van Freden advises that you “pay off this debt first to avoid paying more on interest.”