John Vaughan (Financial Advisor) @ Lucid Living
With the festive season over, borrowing wisely in the months ahead can mean the difference between another financially stressful year or building a solid financial footing for your family’s future.
It doesn’t just happen, you need a clear plan of action to ensure that you don’t slip into over-indebtedness.
Start with revising your budget, cutting back on unnecessary spending, and looking for better deals on everything from your car insurance to your cellphone, is a good way to make sure that you are able to make a dent in your debt.
Then set clear financial goals and develope the discipline to stick to them. Good financial planning and management involves not only responsible spending, making provision for emergencies and savings but also ensuring manageable debt levels and a clean credit record.
Most financial advisor’s will tell you, to remain in a healthy financial position, you shouldn’t be spending more than 35% of your disposable income paying off debt. Yet the reality is that South Africans are spending 76% of their income on paying off debts.
Putting plans in place to get your debt down to a reasonable level is a crucial starting point.
Tips To Keep Your Debt In-Check:
1) Borrow to meet your needs not wants.
Borrowing to fund your children’s education or a home loan can be a good thing, but borrowing to pay off other debt or to fund luxuries such as holidays or designer clothing can condemn you to a lifetime of debt. Only borrow for what you really need.
Create a monthly budget and stick to it. Work out how much income your family earns and what your total expenses are each month. Will you be able to pay for your new debt once you’ve covered all your expenses? You should also plan for unexpected costs such as if one of your family members is retrenched.
Plan the repayments before you apply for a new loan. Also take into consideration the interest and other charges as well as how this will affect your ability to meet the monthly repayments.
3) Understand the terms of a loan.
The principal amount is the amount that you have borrowed and on which you will pay interest. Shop around for the best interest rate and understand how much you will be paying back in interest each month and for how long. Also look for hidden costs, such as initiation fees, service and administration fees.
4) Understand your legal obligations as well as the rights of the credit provider if you do not meet those obligations.
Make sure that you honestly disclose all the information required by the credit provider. Dishonesty may cause you to lose the protection offered by the National Credit Act. Keep your contact details up to date, respond to letters of demand, especially section 129.
5) Pay your debts on time.
Paying late will adversely affect your credit bureau record and your ability to take out credit in the future. If you think you cannot meet your monthly instalments, call your credit provider and try to re-arrange payments. If they don’t accommodate your request, get in touch with a debt counsellor. Do not wait until you skip payments, this leaves you with no options. In addition you end up paying more in interest rates and penalties.
6) Check your credit report regularly.
Don’t leave it until you apply for credit or a new job to find out that the information held by a credit bureau is incorrect. You have the right to challenge any incorrect information.
This can at the best of times be a arduous and time consuming process. Lucid Living are experts in clearing unfair blacklistings and improving your credit worthiness. Save your self the hassle and let Lucid take care of this for you.
Also get instant access to your credit report from Lucid Living now.