The news regarding South Africa’s first interest rate cut in five years is welcomed by consumers. The South African Reserve Bank’s surprising announcement indicated a slight drop of 0.25%. “Although the decrease does not help those with investment savings, consumers certainly receive the announcement with open arms,” says Matthys Potgieter, spokesperson and debt expert at DebtSafe debt counsellors.
 
“Consumers can really save a few rand on their home loans,” says Potgieter. “If you have a home loan of R1 million, a drop of 0.25% results in a decrease of R167.37 a month on your monthly instalment. And paying that money into your bond on top of the new, lower instalment will lead to:
· A total saving of R84 789 over the 20-year term and
· A twelve-month earlier settlement."

Potgieter suggests that if you are are over-indebted, you should make use of the snowball principle and pay off your smallest debt (such as a clothing account) first with what you save in interest.

If you have a personal loan or credit card, you won’t be saving very much per month, but, according to Potgieter it all adds up in the end. “Say you have a personal loan of R20 000,” explains Potgieter.  “The interest rate decrease of 0.25% results in you paying R2.77 less per month on your monthly instalments. Paying that money along with the saving on your home loan instalment into your personal loan will lead to:
· A total saving of R4 339, over the five-year term and
· A 20-month earlier settlement.”

Potgieter further highlights that your monthly interest saving on a credit card debt of R10 000 amounts to R2.08. Credit card minimum payments are usually calculated at 5% of your outstanding balance, so the decrease in the interest portion of your instalment will result in a slight acceleration in the reduction of your principle debt.

This recent announcement can be the ideal motivator for consumers to try their best to lower those debt piles, he says. If, however, you are feeling the strain of debt, you need to speak to a qualified debt counsellor.