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Debt: good versus bad

It is also important that you use the right debt for the right purpose. The danger lies in how well the debt is being managed. - expert

It is also important that you use the right debt for the right purpose. The danger lies in how well the debt is being managed. - expert

Published Jun 18, 2022


IF you’ve been grabbing every bit of credit you can in a bid to survive the current wave of financial difficulties, best you don’t.

An expert with FNB says it’s important to know what is good debt versus bad debt, and to avoid the latter.

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Recently released research by FNB found that it takes an average of five days for a middle-income consumer to spend up to 80% of their monthly salary.

This suggests that the average middle-income consumer, earning between R180 000 – R500 000 per annum, survives on 20% of their monthly salary for more than 20 days in a month.

In layman’s terms these kinds of stats tell us that the average consumer is stretched financially.

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In an interview with the POST Christian Hugo, FNB Money Management Solution Strategist, said it was important to differentiate between good debt and bad debt in managing your finances.

“Good debt is defined as money owed for things that can help build wealth or increase income over time, such as student loans, home loan or a business loan. Bad debt refers to things like credit cards or other consumer debt that do little to improve your financial outcome. It is also important that you use the right debt for the right purpose.

“The danger lies in how the debt is being managed - therefore if it is being managed and you are aware of your obligations and how the debt is helping you, it may not be a false sense of security. however, if it is funding lifestyle spend, this can turn negative quite quickly

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“One also needs to think about the effect on your credit status and your credit worthiness and the danger of being blacklisted if you are not meeting your obligations, or the long-term effect on your ability to borrow for wealth creation types of debt.”


Hugo said it was unlikely that the economy will ease in the near future as the increase in the fuel price and the interest rate hikes will have a knock-on effect on the price of goods, and this will make our day-to-day spending more expensive.

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“It is however very important that we focus on the things that we can control and the one thing we can control is our spending. Take the time to go through your budget and try and see if there are areas where you can reduce your spending.

“One of the ways you can also try and curb your spending, is by setting up a weekly meal plan. This will help you have clarity on the items that you need to buy and you can be on the lookout for specials on these items.

“Then lastly if you are part of loyalty programs try and optimise it and let it help you carry the burden. If you are a FNB client your eBucks can help you free up cash,” he said.


Before considering an avenue like debt counselling, Hugo said it’s best to look at alternatives.

“You need identify ways to free up cashflow. This will help you release some of the financial pressure you are feeling. It might also put you in a position to pay of your debt sooner.

“You need to make sure you have the right debt for the right purpose. This might also be a good opportunity to investigate consolidating your debt. This might help you to free-up some much-needed cash. It will also help if you speak to your bank to explore possible solutions they might have to help you with your debt burden.

“If you have explored all the possible options to reduce spending, made sure you (have) the right debt products and you still don’t see a light at the end of the tunnel, you can consider debt counselling. It very important that you make sure you understand all pro’s and con’s of the process before you make this decision,” said Hugo.