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Tips for living with debt

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Pretoria - Maybe your great-grandfather lived his life debt-free, paying cash down for everything, but in today’s world, that’s an impossible dream.

Very disciplined savers may be able to pay cash for appliances, but few people can pay cash for something major like a car, and you’d have to be very rich to buy your home with cash.

So most of us will live with debt for a significant portion of our adult lives. Instead of ignoring that fact of life, we’d do well to manage our debt comfortably.

1. Pay on time and in full, every month.

People who skimp on payments or pay late develop a bad track record, and a good record is helpful.

2. Ask you bank to renegotiate rates and terms.

With a good credit, you can approach the bank to renegotiate rates and terms. The interest rates you pay are not set in stone: there’s a certain flexibility, and if your bank sees you as creditworthy, it may reduce the rate you pay.

Renegotiating your interest rate on a long-term debt such as a home loan is usually a better option than moving it for a better rate, as there are cash costs involved in switching from one home loan provider to another.

3. Pay more when you can afford to.

It brings down your capital debt faster – and it means that, should you hit a bad patch (if you are retrenched, for example), you’ll have some wiggle room and your creditor will be more willing to reschedule payments to help you through.

4. Save as much as you can.


If we’re not living beyond our means, we tend to live precisely within them – which is what’s behind the old saying, “We’re one month away from a disaster.” 

If the unspeakable - the impossible - happened right now and there was no income coming in next month, how would you cope? A cash cushion that will see you through three months is the goal to aim for.

Put it in an on-call account where it will earn a small amount of interest.

If you’ve followed all these tips, you should be able to avoid sustaining serious losses if and when a crisis comes along.

If you have to cancel your life insurance policies, for example, that’s a permanent loss: you will not get back anything like what you’ve invested in them, and when you’re in a position to afford insurance once more, your premium will be higher.

So being canny with managing debt will help you maintain your lifestyle over the long term.

 - Fin24

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