Are you debt-savvy and ready? Laurence Hillman, MD at 1Life shares the best four ways to cut back on debt before the imminent interest rate increases.
Work out what a 200 point basis rate increase will mean for your current debt obligations and adjust your budgets to ensure you are able to accommodate this increase.
For example, if you currently pay around R 8 000 on your bond, a 2% increase in the interest rate will move this repayment up to over R9 000 a month – that’s R1 000 plus that you didn’t budget for.
Therefore, you should manage these types of possible changes by paying off retail accounts and closing them to avoid the temptation during tougher times to max these out, or, putting a little more money towards current debt to reduce the interest rate on it and get closer to paying it off. Of course, you can also look at getting rid of those contracts you never use (provided there are no penalty charges) and only buying things that are essential, for example; waiting to buy that new TV when the old one works just fine. Setting and sticking to budgets will also go a long way to staying on track.
Ensuring you understand what debts you have is most important so that you have a clear view of what you are dealing with. Deduct expenses from income and if there isn’t enough left to cover debts, adjust the budget by cutting spend. With any money left over make sure the debts are paid starting with those that have the highest interest. Then, start negotiations with credit providers to consolidate debt and reduce interest rates, while sticking to monthly debt obligations until they are paid off.
You should look after your savings and while you can, keep ‘paying yourself first’. You should save for that rainy day, that unexpected expense such as an insurance excess or a sudden medical bill, so that when it comes you have a buffer fund to help you out should you need it.
If you’re already struggling, it is now that you should seek debt counselling support – which can significantly help you reduce your financial obligations and help you weather the storm when these obligations become larger than what was accounted for.
“The interest rate changes will wait for no one – you need to start now – because it is expected that in just a year, at an 11% prime lending rate, taking a look at one’s finances then will be too late. Seek advice and don’t be scared to take the first step to a sound financial future,” concludes Hillman.