We have been talking about debt recently; specifically about its dangers and how to get out of it. One question that most certainly comes to mind is this: “Do I pay off my debt or do I save instead?” This is a very valid question and it is best answered by maths.

The reality is that for as long as you are making debt repayments you are enriching your creditors and therefore it is almost certainly better to pay off your debt first. Let us consider the following:

  • pay backYou should always try to save some of your income for emergencies, as unplanned expenses can put strain on our finances and be very expensive.
  • If you are paying more in interest than you could earn in interest then it is better to pay off your debt first. Once your debt is paid off, or it is at a manageable amount, then you can increase the amount of money you are saving and start investing. By manageable I mean that your debt-to-income ratio is less than 50%
  • Prioritise paying off the debt with the highest interest rate first. It is often short term debt that comes with very high interest rates and it is therefore best that you pay off that debt as soon as possible
  • Beware of early payment penalties. Some debt comes with penalties should you pay them off early, in which case you need to stick to the payment plan. Make sure you know the terms and conditions of your debt.

Proverbs 27:23 says “Know well the condition of your flocks and pay attention to your herds”. You need to be well aware of your financial situation and track your money so that you can make wise and informed decisions. Rather than carry the burden of debt, pay it off and stop enriching your creditors.

Lesetja Madiba is a Financial Wellness Consultant at Citadel.

debtfreeWe previously spoke about the dangers of debt and how the Bible says the borrower becomes a slave to the lender. This warning is all well and good, but what happens if you are already indebted? What can you do? Is it possible to get out of debt?

The simple truth is that it is possible to turn your financial situation around. There are practical things you can do in order to get your debt under control and eventually be debt free. It goes without saying that budgeting is a key part of this process. In other words, have a clear record of where your money is spent. After budgeting one can look at a few considerations:

  • Stop borrowing money: This may seem quite obvious, but debt does have a snowball effect and you need to make a conscious decision not to incur more debt and to limit yourself to cash and debit purchases..
  • Understand your debt. Make sure you know who your creditors are, what outstanding balances you have and what the interest rates are. This will help you to prioritise your debt repayments.
  • Pay more than the minimum monthly amount. Often the minimum monthly amount is simply to “service” the debt rather than repay it quickly. When possible always pay more. This way the debt will be repaid much sooner and you will pay less interest.
  • Live on the absolute minimum budget. When wanting to pay off debt you need to ensure that you cut out luxuries. Things like satellite television and fast food are expenses that need to be stopped until your debt is manageable. The more you repay towards your debt the faster you will be debt free.

Proverbs 21:5 says “The plans of the diligent lead surely to advantage, but everyone who is hasty comes surely to poverty”. Have a structured plan and don’t just watch your money go towards debt repayments. Tough times call for tough decisions, sacrifice the luxuries for a time to ensure a better financial future.

Lesetja Madiba is a Financial Wellness Consultant at Citadel.

debt ball and chainQuite a lot has been happening economically in our country of late. The petrol price increase and the worst drought in decades are two such examples that have resulted in a lot of people having to tighten their financial belts. Often when we find ourselves under financial pressure, we look for immediate relief. The seeming solution bringing the quickest relief is credit, or rather, debt. Consumers are inundated with offers for credit but if one misuses a repayment, you can find yourself in very hot water.

How does one then manage their finances in such a way as to avoid unnecessary debt? And what are the dangers of high and unmanageable debt? Here are a few considerations:

  • High levels of debt are a like a handbrake that is engaged: you will go nowhere: As long as you are paying debt you are enriching your creditor. High and unmanageable debt keeps you from saving and therefore obstructs your financial progression financial.
  • Debt is expensive. We all know that if you borrow R100 for instance you pay back more than R100. Interest rates have gone up twice already this year and therefore our debt has become even more expensive.
  • Manage your finances well enough to avoid debt. Sound financial and expense management will ensure that you know where your money is going and where you can cut back to save money. Rather than opening new lines of credit, cut back some of your expenses and pay off your existing debt.
  • Delay your gratification. Rather save money and wait a while before you make large purchases. Owing nothing on your possessions is so much sweeter!

In Proverbs 22:7, the bible says, “The rich rules over the poor, and the borrower becomes the lender's slave”. While credit and debt may provide instant relief, remember you have to pay the money that you borrow back, with interest! The relief you feel will be short lived. Your debt can soon enslave you if your finances are not managed properly. It is not a crime if you cannot afford a certain purchase, rather save for it. Or better yet, if your purchase is not a necessity, don’t make the purchase at all and save instead.

Lesetja Madiba is a Financial Wellness Consultant at Citadel.

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