Use your 13th cheque to kick off 2012 debt free

The Eurozone debt crisis, coupled with the rising cost of living, paints an uncertain economic outlook for many South Africans. As a result, those who are lucky enough to receive an annual bonus should resist the urge to spend the money and instead channel as much as possible into the payment of debt to ensure a smooth financial transition into 2012.

This is according to Peter Atkinson, National Technical Portfolio Manager at the Financial Intermediaries Association of Southern African (FIA), who says this means not only meeting current and arrears payments but also looking to settle debts, thereby releasing additional funds in the New Year that would otherwise have been put towards debt repayments.

“When considering which debts to pay off there are four questions consumers can ask themselves: which debts are most pressing and threatening to result in potential additional costs if not serviced immediately; which carry the highest interest rate; which do not carry any penalties or added costs for early settlement; and, which are at a stage where the settlement amount is reasonably low in relation to the regular monthly payments?”

Atkinson says for those South Africans who are not fortunate enough to be expecting a bonus, then the emphasis should be on minimising the extent to which one adds to their debt burden through further spending. “Try to reduce the cost of presents and other purchases so that you don’t start 2012 with an additional financial burden, either through cheaper gifts or by offering something homemade.”

He says it is also a good idea to start a personal or family budget. “If you don’t have a budget or you’re not working to the one you currently have then this needs to be addressed. If you are carrying debt, now is the time to revisit the budget and cut out anything that is dispensable. Be ruthless and remember that there is a clear difference between a ‘need’ and a ‘want’.”

“Some consumers believe cutting down on insurance premiums is a good way to save, however, this is not the case. On the short term side, this could leave you exposed to a risk that you cannot afford, while terminating life insurance policies may result in risk exposure as well as considerable penalties, which you don’t want to incur for the sake of the longer term plan.”

He says it is important to remember that a budget has two sides: expenditure and income. “Consider the possibilities of earning a little extra income on the side - perhaps by offering a gardening service on a Saturday morning, or doing a short shift in a call centre in the evenings. Or perhaps it is just a matter of cleaning up that outside room and looking for a tenant. You’d be amazed how much even a small amount of income can contribute to overall debt repayments.”

“However, for those who are so seriously in debt that the above does not offer a feasible solution, it is critical to act now and investigate the formal debt counselling process. Ignoring the problem will not make it go away and will most likely enable you to relax over the festive season,” concludes Atkinson.