A Fin24 reader recently made her final debt review payment. With extra cash at her disposal, she seeks the advice of an expert on what to do next.
I was over-indebted to the point where I ended up going for Debt Counselling in 2015 after my son was born, and in June 2020 I finished my debt review payments. I am anxious as I don't know what steps to take next to improve my financial strength.
My current financial situation is as follows:
- Salary after deductions: R14K
- Debt review fees: R5K
- House rental fees: R5.2K
- Other expenses (child fees, DStv, electricity, grocery, petrol etc): R3.5K
Basically, per month I have a little disposable cash of around R300.
Now that I am going to have an extra cash of R5 000, I don't know how I will put it to good use in terms of saving, especially during this pandemic we are faced with.
I wish to at least own a house soon instead of paying someone's rent. How do I go about it? I have a child now; I need to prepare for him... Please help.
Benay Sager, Chief Operating Officer at DebtBusters, responds:
It is always great to hear a consumer successfully completing debt review (or debt counselling). We extend our heartfelt congratulations to this consumer for reaching financial freedom!
Now that the consumer is debt free, she can use the extra amount of R5 000 left to build up for her future. At DebtBusters, we always advise consumers to put the right insurance and assurance products in place if they do not have any yet. In this case, this would be putting in place a fund for the child, opening a savings account or a rainy day fund, putting in place an affordable insurance policy for the household contents (and similarly a vehicle insurance if there is a vehicle), and exploring an affordable life insurance policy.
These days, there are some really exceptional policies that also pay out cash in a few years (or give cash back every month based on good behaviour), so putting these few policies need not cost more than R3 000 per month. However, they are crucial in making sure the consumer is protected in the future, and build a nice reserve to draw from.
Then the consumer has R7 200 (R2 000 left over from debt payments plus the R5 200 she was paying towards rent) that she could use towards the purchase of a house, which is a lifelong dream for many consumers. Currently interest rates are at all-time low with prime interest rate at 7% and the housing market is favourable to buyers, so she could get a great deal on a bond for an affordable property.
Our advice would be to explore with her bank and other bond aggregators potential option(s) she might have for a bond, and get a few quotes to compare. Most banks also have bond calculators on their websites, which give a good idea on expected payments for a bond.
For this consumer, if she uses the entire R7 200 and is able to secure a bond with 9% interest rate (prime plus 2%), then she can probably get a R800 000 property. Of course the exact interest rate and bond amount would depend on the lender, but the above is an average calculation.
We wish the consumer best of luck in purchasing a home, and putting in place the right insurance and assurance products to ensure she is building for the future.
Questions may be edited for brevity and clarity.
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