Conquer your debt

South Africans have had to face a hike in Value Added Tax (VAT) from 14% to 15%, but those in debt with financial service providers have had this offset by the recent repo rate cut.

In the grand scheme of things, the VAT increase means that every time you go to the shops, fill up your car with petrol, or buy any product or service that’s subject to VAT, you’ll be paying more than you did in March.

However, there’s light at the end of the tunnel in the form of the 25-basis point cut in the repo rate.

What does this repo cut mean for me?

The repo rate is the interest rate at which the SA Reserve Bank (Sarb) lends money to commercial banks.

When Sarb lowers the repo rate by 25 basis points, it means your interest rate on your debt becomes cheaper by 0.25%, which is great news if you have a home loan, car loan, overdraft, store card or credit card debt.

Here are seven vital tips to households burdened by debt:

1. Borrow responsibly and reduce your debt as much and as soon as possible. Consider contacting your financial providers to keep your bond and vehicle finance repayments unchanged despite the cut in interest rate. Doing this will reduce your overall home and car loans and enable you to pay them off sooner.

2. Buy zero rated (VAT exempted) groceries: brown bread, dried mealies, dried beans, lentils, canned pilchards or sardines, rice, fresh fruit and vegetables, vegetable oil, milk, eggs and legumes.

3. Get to grips with your debt:

Find out exactly how much you owe and to whom

Calculate how much interest you pay on each debt

Pay off the debts with the highest interest rate first – normally credit cards, store cards and micro-loans.

4. Understand what’s happening in the economy. Every change in the economy will affect you in some way or another, so educate yourself, keep up to date with current events, and adapt your budget accordingly.

5. Cut back on things you can do without.

6. Review your loyalty to expensive brands and stores, and worry less about keeping up with the Kardashians and Dlaminis.

John Manyike is head of financial education at Old Mutual