A plan to cut personal debt
With a focus on Financial Planning this month, effectively managing debt remains a key challenge for many South Africans, says Shirley Smith, Old Mutual CEO (Finance Chief Operating Officer).
A focus week aimed at promoting professional financial planning for all and creating awareness about the value of financial education and planning, is an initiative of the Financial Planning Standards Board, of which Old Mutual is a key partner.
“With consumer inflation seeing a year-on-year increase of 4.6% in July 2017, according to Statistics South Africa, South African households are clearly feeling the pinch," Smith said, "causing many of them to resort to pay-day loans at high interest rates."
She added that incurring debt is fairly easy while managing it is not, and "borrowing from Peter to pay Paul is not a smart way to go about managing your finances”.
The 2017 Old Mutual Savings & Investment Monitor indicates that on average working metropolitan South Africans are allocating 16% of their monthly income to repaying debt, which "is significantly high". Smith says that this figure is more worrying because it's remained the same for the past six years, an indication "that we are in fact trapped in a recurring cycle of debt and not properly managing our money".
Urgent measures, such as debt consolidation are good first step, Smith adds, although she concedes that not all debt was bad.
Some debts make good financial sense. “Essential longterm debt, like a home, car or student loan, is - acceptable when effectively managed," she explains. "The problem comes when you accumulate an unmanageable amount of debt on a regular basis. It is essential that you avoid or reduce expensive short-term debt, such as credit cards or store accounts." She proposes the following to help you manage debt:
Make your monthly debt repayments on time. Even a payment that is only 24 hours late can be bad for your credit rating. Always pay at least the minimum instalment required. If possible, pay more than the minimum payment on accounts to further improve your credit standing. Pay your most ‘expensive’ debts off first.
These are the ones with the highest interest rates such as clothing and furniture accounts. Close accounts not in use. Credit providers assess the full facility of the credit agreements on record, even if they are not being used.
Don’t ignore a letter of demand or any communication from your creditors.
Always be proactive and take appropriate action by contacting your creditor to discuss a repayment plan if you are not able to meet your obligations.
If you simply cannot make payments on all your outstanding accounts, speak to a debt counsellor, who will on your behalf negotiate revised terms on settling your outstanding debt. For more information on effectively managing your finances, visit www.oldmutual.co.za.