DURBAN - The South African Reserve Bank (Sarb) has announced a reduction in the repo rate by a further 50 basis points bringing this year’s total cuts to 275 basis points, which offers South Africans some much needed financial relief.
For instance, consumers with a home loan of R1 million will now pay roughly R300 less per month.
The repo rate drop means that households may benefit from extra disposable income, an opportunity that I encourage consumers to use to relook and improve their money matters, especially in light of the current pandemic. This cut is an ideal opportunity to review your financial goals given the current economic climate.
If possible, begin by paying off debt faster, this can reduce the overall interest you pay and your disposable income will increase once paid off. It is also an important time to focus on savings. Our clients get access to 4 free savings plans, which can be named after their purpose such as emergency funds, education or home improvement. Save towards items that will help you live better and that your future self will thank you for.
Here are four tips to take advantage of the repo rate drop:
1. Pay off your debt faster
The decrease in repo rate means that your monthly instalments on credit with flexible interest rates will decrease. While it may be tempting to use this money to improve your lifestyle, rather continue to pay off your debt as if the interest rate change has not taken place. Paying off a loan faster means that you’ll save on the amount spent on interest. Your future self will also thank you for those few less months of loan instalments, which can be used to invest in your future or for things you actually enjoy.
Tip: Pay off credit with higher interest rates first. Store and credit cards often have high interest rates when compared to other loans. Pay these off first to maximise your savings and where possible move to simpler and more affordable options. Capitec’s credit card offers low personalised interest rates.
2. Start that much-needed emergency savings
One of the lessons to come out of the Covid-19 pandemic is that savings are important as life can present unexpected situations. Build enough savings to cover at least 3 month’s expenses. It protects you from dipping back into debt each time there is an unexpected expense. Also be sure that you your money is working for you by placing it in a savings plan that offers you the highest possible interest rate.
3. Pay it forward to your future self
Use your bank’s app to setup a recurring monthly payment into a savings plan. Once you’ve built up a sizeable nest egg, which will be earning interest each month, you can use this money to buy a new household appliance, to purchase a new computer or even kick start that side hustle you’ve been dreaming about.
4. Study further
A recent poll conducted shows that 21 percent of South Africans name furthering their education as a savings goal. Use the monthly saving towards studying further, which could earn you a promotion or the opportunity to apply for a new exciting job.
Tip: Learning through an online institution such as Educate24 or GetSmarter allows you to study part-time from the comfort of your own home. Capitec clients get 50 percent off on all Educate24 online courses and R4000 in savings when enrolling with GetSmarter via Capitec’s dedicated GetSmarter page.
Francois Viviers, Executive: Marketing and Communications at Capitec