By Ipeleng Letsoalo
A lot of people get stuck with one important question when it comes to managing their money; should pay I pay my debts or save money first? The first answer is that this will depend from person to person, taking into consideration each person’s income VS their expenses; that’s affordability. We have high income earners, average/middle income earners and low income earners. Our idea at The Solomon Star newspaper is to educate all categories of income earners because whichever category you fall under at some point you need to be educated on savings and debts.
We have big debts e.g. bonds and small debts e.g. personal loans.
Why should you save your money if you have small debts that you can pay off quickly with the money you were planning on saving? Remember that debts have a lot of interest, so rather pay off the small debts first and work on a strict budget.
When setting a budget you need to be strict on yourself and you also need to be able to compromise on certain items until your goal is reached. Instead of eating at restaurants or getting take out, rather stay home and cook.
It will be wise to pay your debts off in a way that motivates you when it comes to your budget, because the fact that you see progress on paying some debts off, or even one debt for that matter, is a big achievement.
All debts require a minimum payment, how you can start off is by putting as much extra money aside as you can. You can even start with one debt. Let’s say you have a personal loan of about R50 000 and your required instalment is R500 per month, you can put any extra amount directly in the personal loan account to reduce the interest of the loan.
Once you are done with the first debt then you can move over to the second debt and so on. After paying off your small debt and closing it you will then have extra money that you will be able to save. Even with a clothing account you can commit to closing it off quickly by paying the account without buying clothes on account because if you pay it off and still buy clothes on the same account it will defeat the purpose of you trying to close the account.
When it comes to big debts, e.g. bonds, normally bonds can be paid over a maximum period of 30 years. So with your bond, after paying the small debts you can also put extra money as and when you please as it will reduce the interest on the bond. When you receive your bonus at the end of the year or on your birthday, before spoiling yourself and your family, it would be smarter to take a portion of your bonus and put it in the bond account to reduce the interest.
Just like with other tasks, in order to achieve financial freedom and to reduce the stress and depression that comes with debt and lack of saving, you need determination, self-discipline and perseverance because once achieved, you will have peace of mind and thank yourself.