Clearing short-term debt is good for financial wellbeing

When looking at the political and economic climate, you may be tempted to agree with many economists when they predict that financially, 2018 will be a better year than recent years.

Despite there being many events that could put a spanner in the works and turn the year into a financial nightmare, 2018 should be a year in which we aim to get rid of our credit products, especially short-term ones.

However, to do this successfully, the first thing you, as a user of credit products, should consider doing is managing your finances in a way that will result in your current expenditure not exceeding your income.

Short-term credit products like personal and revolving loans and credit cards attract more expensive interest and are harsh on the household budget.

The trouble with buying on a credit card or a store car is that you can easily find yourself paying back double the amount you had borrowed.

If you stick to the prescribed minimum repayment plan that a financial institution has given you to pay off the short-term credit product, chances are that it will take you some time to finish paying it off, which will be detrimental to your household budget in these trying times.

If you pay more than the minimum amount required, you will pay off the debt sooner and have more cash in your pocket, which you could use to start a savings account or to join a savings club such as a
stokvel.

Once you are done paying off your short-term debt, try your best to avoid these sort of credit products in future, especially if your use of such products is driven by a desire for entertainment - a want rather than a need.

It is better not to go out partying or clubbing just because you have exhausted your monthly income.

If you train yourself to use money wisely over the short term, it becomes easier to pay more into medium- and long-term commitments such as your home loan or car finance loan.

The Gauteng department of economic development's Milly Viljoen says borrowing money recklessly to finance luxuries can trap you in a vicious cycle of debt for years.

"The beginning of the year is an ideal time to improve the way we manage our personal finances.

"Steering clear of debt is not as difficult or overwhelming as it often seems, even during these hard financial times," Viljoen says.

She advises people to borrow as little money as possible.

"Borrowing to fund your children's education or to buy a house can be a good thing. But borrowing for consumables - such as groceries, a
holiday or designer clothing - can condemn you to a lifetime of debt," she said.

"Start saving consistently - put aside at least 15% of your income every month in a safe investment. Save for your retirement as well."

Pay your debts on time - paying late or failing to pay the full instalment will adversely affect your credit rating and possibly your ability to take out credit in the future.

"If you think you will not meet your monthly instalments, contact your credit provider immediately and try to rearrange payments.

"Do not wait until you skip payments."