Settle your debt – kancane, kancane
Settling all or a portion of your personal debt can seem like a daunting task when you feel like there is too much to get through. Whether you are planning a big purchase like a new car or you need extra cash to deal with unexpected emergencies, before you take on any debts, make sure you can afford the debt repayments over and above your current expenses.
“It is important to borrow money responsibly so that you are able to repay your loan and maintain a healthy credit score. Set yourself goals to pay off your debt by a certain date and where possible, try and save towards your financial goals,” says Magdeline Thidiela, Head of Client Solutions and Personal Lending at Standard Bank.
Being financially responsible means, you live within your means and spend less than what you make or earn. Before you get into a debt agreement, evaluate the interest rate and repayment amount and ask yourself if you will be able to make the payments comfortably. Make sure you understand the detailed breakdown of the repayment amount and the total cost of the loan. Thidiela gives us three key considerations before you take out a loan:
Consider the purpose of the loan
Taking out a loan to pay for a home or an education makes sense in many cases but borrowing for vacations or other discretionary items may not be necessary. Too much debt can be a long-term burden. Thidiela advises: “Do a budget to work out your monthly spending, savings and borrowings and check how much you can afford to repay your loan. Borrowing may not always be the best option. There may be other ways to achieve your goals without going into debt. For example, you can meet your goals by being patient and saving instead of borrowing”.
Ensure you can afford the loan
Some people think settling debts will take just a couple of months. But this is, unfortunately not true. Before borrowing money, shop around for interest rates and watch for any extra charges. Thidiela advises: “When you borrow money, you have to repay the principal, amount borrowed, plus interest and fees. If you choose a floating-rate loan, be mindful that your repayments will rise and fall in line with market interest rates.”
Pay on time
Once you start making payment on your loan, it is crucial that you do so on time. Capitalised interest charges are not a fun way to spend money and more importantly, poor payment history can negatively impact your credit. Thidiela advises: “Get yourself organised with monthly bill paying, or better yet, set up automatic payments. If you opt for the latter, stay on top of your bank account balance, especially if you have multiple automatic withdrawals; it can be easy to go into an unplanned overdraft position without realising it”.
If you have extra money, use it towards your loans. It is not as glamorous as a wardrobe or vehicle upgrade, but it will pay off in the long run. Paying more than the minimum is a great way to shrink loan debt fast and save on interest charges. Challenge yourself to increase your monthly payments regularly. As your salary grows, your loan payments should too. Set a goal to increase your payments monthly or annually, so you will pay less in the long run.
If you manage your loan repayments responsibly, they will not take over your life. Start by doing your homework and continue being a responsible borrower by consistently making payments on time and if you are unable rather be proactive & advise your bank.