Question:
I earn a decent pay check but have a lot of debt. What is the best way to get out of debt? Should I start saving?

Answer:

Many South Africans come with debt baggage. Before the National Credit Act (NCA) came into effect in 2007, consumers enjoyed uninhibited spending sprees using money they didn’t have and accumulated large amounts of debt. Two years on, control has been tightened, but consumers are still spending irresponsibly. While it may be less exciting to save a portion of your income compared to blowing it on an expensive pair of designer jeans — or even worse, putting them on a store card — the reality is, in time you’ll have more debt and less to show for it.

Living within your means is important if you want to make money. And contrary to popular belief, you don’t need to be wealthy to save. In fact, often the opposite is true. If you earn a good salary but have plenty of debt, it is wise to nip your excessive lifestyle in the bud to prevent accumulating more debt. That means settling your store cards as well as your credit cards — possibly by using a year-end bonus or portion of your income. While credit cards can help you cover unexpected costs, like a car service or plane ticket, ideally you should start a 'rainy day' fund for situations like this. In the very least, pay off any credit card debt you may have by the end of the month to prevent being charged additional interest.

If you do not have enough cash to pay off your debts in one go, consider opening a high-interest savings account. Simply set up a monthly debit order that you can afford from your current account and over time you will reach your goal amount. But make sure you use the money towards your debt and not on a flashy holiday! Many people are tempted by the availability of large sums of money and will burn it rather than use it wisely. Once you have paid off your debt, start developing smart spending habits instead of falling back into the debt trap. Draw up a monthly budget to obtain a clearer picture of your spending patterns. Once you have control over how and where you spend, you will be able to manage your money better and could even start earning interest on your money!

If at the end of the month you can afford to put away R300, consider starting a savings fund for those unexpected expenses. This way, you will have money in the bank that works for you. You will be more in control of your life and who knows, within a year you could afford something really special — in cash!

For further information about Capitec Bank, click here!

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