A plan to cut per­sonal debt

Grocott's Mail - - ECONOMIX - By STAFF RE­PORTER

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.

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