Help – single mom drowning in debt

PAYMENTS: REVOLVING LOAN AND CAR, BUT WANTS A PLACE OF HER OWN

Rick Briers-Danks, a partner at Veritas Wealth in Cape Town, advises a reader who is worried about her financial future.

Q: I am a 25-year-old female with some income in a retirement annuity and a member of my work’s pension fund. After university, I took out a R120 000 revolving loan to build a house for my single mother. I am also paying off a car.

My income cannot get me through the month as I also help with household expenses. I am worried because my son starts school next year and I have not even saved a cent for his education.

I want to pay off my car and revolving loan as quickly as possible, start saving for my son’s education, move out of my mom’s house and invest some of my salary. How?

Bringing up a child as a single parent is never easy, but you have already done extremely well by getting a university education, finding a job and financing a home for your mother!

What is also great is that you are clearly focussed on getting yourself on track financially.

You may feel anxious about your current financial situation, but it is a medium-term challenge, not a long-term one.

You have time on your side. You are young with many productive years ahead.

As a university graduate, your salary should also increase steadily over the next few years. The great news is you clearly have the “savings gene” and already are saving into your work pension and individual retirement annuity.

Paying off your debt as aggressively as possible is exactly the right thing to do.

Concentrate on the expensive debt first and consider consolidating your debt to make it more manageable.

To free up cash, cut unnecessary expenses. Channel any savings into shrinking your debt faster.

You may consider stopping contributions to your retirement annuity – if you can, without penalties.

You are probably not gaining any tax benefit from using a retirement annuity. This may change in time, but it’s better to use your pension fund for retirement savings – it’s cost-effective and you are able to increase your contributions over time.

Once your debt has reduced, increase your pension fund contributions to the maximum allowed. And then save the money that was going to your debt into a money market account. This will be the deposit for your home.

At some point, you will need to decide when is the right time to move out of your mom’s home – a big decision that will put more financial pressure on you.

Stick to your plan as closely as possible, but understand it will be a bumpy road. Good luck!

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Concentrate on the expensive debt first and consider consolidating your debt to make it more manageable