WITH reduced interest rates, now is an excellent time and opportunity to take full advantage and make it a priority to pay off one's debt since many people have been living beyond their means.
Debt is nothing to be ashamed of, sometimes despite their best efforts, many people end up in debt and many people find it hard to cope with their finances at some time in their lives. The number of people applying for and receiving debt counseling is at an all-time high.
There are some golden rules when dealing with debt. Probably the most important is that one needs to deal with it because this is a problem that is not just going to go away. Don't panic or ignore it or it will just get worse. There are two kinds of debt - healthy debt and unhealthy debt.
Very few people can afford to buy a house or car for cash, so this is what I like to think of as healthy debt. Credit cards, store-charge cards and so on are what I term unhealthy debt. It is this unhealthy debt that usually attracts the highest interest rates and needs to be paid off first.
If you have become accustomed to paying off debt at higher interest rates in the last couple of years, then try to keep the repayments at the current levels if you are able to. Don't adjust it since even a 10percent extra payment on a monthly repayment can reduce a 20-year bond by six years.
If you are in debt, try to reduce the level of spending on luxury items and when you go to the shops for bread and milk, make sure that is just what you buy. It is better to plan one major shopping trip a month and shop according to a strict list. It is amazing how all the "extra necessities" add up to a considerable amount each month. You can only do this effectively if you have a budget in place, which you stick to. Maybe, even give online shopping a bash - then you are not tempted by all the marketing ploys and fancy and inviting displays in the shops.
Another tip that can save you a considerable amount of interest over the long-term period of your bond, which is normally 20 years, is to fix your bond repayment debit order for the day after you get paid (which for many people is the 25th of the month), instead of the last day of the month or the first few days of the new month. Everything adds up.
In the unfortunate event of the death of a breadwinner, you certainly do not want your family burdened with debt. The bond on your house, balances on car repayments, overdraft on your cheque account and outstanding debt on credit cards are debts you or your partner will have to deal with and settle if provision has not been made to settle them.
l Hirsch is a director of Pioneer Financial Planning. Visit www.pioneer.co.za