Individuals who currently have a lot of debt are probably a little nervous in view of the latest increase in interest rates. They have steadily been creeping up over the last two years from 9% in January 2014 to the current rate of 10.5%. This does not seem like a lot on the face of things but if you have an R800k bond, and a R100k car loan, that’s an extra R790 per month you will have to find in your budget. Add this to increasing utility rates, fuel increases, and food inflation (which is predicted to reach 11% this year) you are going to feel the pinch.
The good news is you don’t have to be a sitting duck, there are tweaks you can make in your budget that can counter the effects of these financial pickpockets.
The do’s
- Scrutinize your spending and weed out the expenses that you don’t need.
- Divide your expenditure into “can’t survive with outs” (and yes you can survive without cappuccinos and premium energy drinks) and “silly spends” you know what they are.
- Redirect your savings to paying off expensive debt like retail accounts.
- Put your credit cards on ice.
- Monitor your transport costs.
- Cull your entertainment bill.
- Cancel unused subscriptions.
- Keep your phone instead of upgrading, you will not suffer if you don’t have the new emojis on your keyboard.
- Speak to your creditors if you see trouble brewing, they may assist you to reduce your payments.
- Sell stuff to pay off debt, just admit to yourself that you are never going to get on that treadmill.
The dont's
- Don’t take on any new credit, consolidate and clear.
- Never cancel important insurance policies like car and home, life, disability, etc. These can be the difference between comfort and poverty.
- Try not to dip into savings or cancel savings policies to fund short-term cash crunches. Rather cancel cable TV or give up your flute lessons for a while. It is really difficult to build up savings once you have spent them, plus you will have forfeited the compound growth on them.
- Don’t just stop paying bills, paying part of the bill is better than missing payments altogether.
- Don’t miss payments on risk insurance policies, if you miss even one payment you are no longer covered. You can however ask for a payment holiday on investments.
- And finally, don’t put your head in your hands and wait for the pain. Be proactive you will be surprised at how resourceful you can be when you focus on the solution rather than the pain.
