Interest rates increase should be a lesson to the over-indebted

2016-03-03 06:00
 An indebted man scratches his head.

An indebted man scratches his head.

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There are many concerns over government’s plans to increase interest rates this year . . .

Raising the interest rate always hits those in debt the hardest.

Eunice Sibiya, the head of Consumer Education at FNB, said that if you feel like panicking when you think of the amount of debt you have and that you just aren’t making it month to month, take action now.

She warned that things are only going to get tougher before they get better.

She gave a few pointers to help you see if your debt is getting out of control.

“There are a few signs and financial behaviours that indicate that your finances are in trouble or that you are headed in that direction.

“If you need to take out a new loan to pay off old credit, then you have a clear sign that your finances definitely need help.

“If you find yourself missing out some of your debt repayments because you can only afford to pay some of them and not all, then you are in trouble,” she said.

Eunice added that if you’re using credit to finance a lifestyle you can’t afford, you are sadly way in over your head.

Eunice said the first step is to recognise and admit that you have a debt problem and commit to sorting your finances out. Then cut up those store cards and stop spending on credit.

She also gave a few tips that serve as a good strategy to start on your journey of debt recovery.

, Draw up a list of your debts and decide which is the most important to pay off

Make a list of all your debts. Look for what’s most urgent or expensive. You should aim to get rid of debt with the highest interest rates first.

This includes debt such as store accounts and unsecured loans, such as credit cards and personal loans.

“The higher the interest rate, the more money is wasted servicing the debt’s extra expenses,” said Eunice.

, Draw up a budget and prioritise your debt

Once you have a better understanding of your debt and which is the most urgent, you can now draw up a budget that allows you to prioritise your “debt crunching mission”.

, Seek professional help if you can’t manage debt on your own

“If you are drowning in debt and are unable to recover on your own, a debt review maybe a solution. However it should be a last resort.

“A debt counsellor will be assigned to you and is responsible for all your finances. However, it still remains your responsibility to keep tabs on the progress you make in clearing your debt.

“Take note that people under debt review are not allowed to take on any extra debt or use credit cards, and need to stick to a very strict repayment process,” said Eunice.

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