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f consumers do not reduce their levels of debt, improve their money management skills, and try to put aside money for emergencies, education, retirement and other important items, the savings ratio in South Africa will not improve.
Unfortunately this is not the case for many consumers whose budget deficit is such that the only option is to negotiate the reduction of their monthly debt repayment obligations or for them to undergo debt counselling. There is a sizeable chunk of consumers whose debt levels are so high that even a reduction in monthly obligations does not assist in addressing the debt-stress. This is the case with consumers whose income has reduced due to divorce, retrenchment, unemployment or the failure of a business venture.
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An analysis of the income and expenses of consumers by the National Debt Mediation Association (NDMA) shows that it is possible. All it requires is more discipline and adjustments to the budget by cutting out unnecessary expenses, for some consumers to afford their living expenses, repay their debts and save. This, however, takes commitment and perseverance.
Build up an emergency fund Unforeseen expenses, such as the costs of an accident or medical emergency, can set you back financially, and may even force you to take out a loan to cover the expenses. “You want to build up an emergency fund over time to use in cases such as these,” she says.
“But it doesn’t have to be an either-or situation,” says Mphahlele. “For instance, you could be setting aside money each month to pay off your home loan, while also contributing to a retirement annuity.”
Pay all your debts on time to avoid penalties and a negative credit record. Pay more than the required instalment on all your debts if you want to reduce your debt levels. Tackle the debt with While it’s difficult to even think about You should put an amount into an the highest interest rate payments saving when salaries are being frozen, account that is not necessarily your first – usually credit and store cards or workers are being retrenched, and costs day-to-day account, but which you can personal loans, and then longer-term such as food, electricity and petrol just access at short notice. You could also use loans, such as car and home loans. keep going up, now is the time to be these savings to cover day-to-day living smart with less cash. Should you be struggling with debt expenses should you lose your job. repayments, do not wait for the arrears “When times are tough, it’s more “If you’re retrenched, you want to be to build up before you approach your important than ever to make sure you’re able to cover your living costs, including creditors. It is difficult to negotiate if tightening your belt and saving, as you’ll repayments on debts such as your home legal action has already commenced. need it for tomorrow,” says NDMA CEO, loan, so ensure that you have suitable Magauta Mphahlele. and reasonable insurance cover which Cut back includes credit life insurance. Shop “Ideally you should be saving between One of the main reasons people battle around for the best policy in terms of 10 and 15% of your income and to save money is that they can’t or won’t cost and type of cover,” says Mphahlele putting it in different types of saving change their spending habits. It’s a bit and investment products based on your Don’t be tempted to dip into your like dieting – cutting back on electricity short- and long-term needs and goals,” emergency fund for “I want” expenses usage, ditching the expensive cell says Mphahlele. She adds that by putting like shoes, clothes or a night out. phone, using discount coupons at the away money each month, you’ll also be supermarket or resisting buying that pair building the discipline needed to save. Pay off your debt first of designer shoes are all simple ways to save. “Even better, use a direct debit that goes In order to be able to save, you need straight into a savings fund so you don’t to try to pay off your debt first. There’s “It’s as simple as making sure that your even miss the money,” she adds. “What little point in paying high interest rates income covers your expenses,” says you don’t see, you won’t spend.” on your borrowings while trying to save. Mphahlele. “If you can’t afford to pay for 38
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