What can you expect to learn in the debt repayment 101 series?

Key Outcomes: Healthy credit score, improved credit score, debt-free, healthy personal finance, stress-free finances.

When used responsibly, credit can be a helpful financial tool. Whether it’s taking out a home loan, securing financing for your business, or buying a car with manageable repayments. Access to credit can also help you deal promptly with unexpected, costly emergencies and can offer peace of mind when travelling.

But, when not managed correctly, credit can also lead to crippling debt. Getting rid of that debt is a big mission!

Debt repayments can seem like an insurmountable task, but there are clear and effective strategies to manage your debt and the process of repaying it. We’ve got everything you need to know in our debt repayment guide so that you manage those outstanding amounts with ease

Ready to get started? Let’s get going below.

Article 3 – Accelerating your debt repayment

Outcome: Understand the value of paying off your debt quicker than the repayment term and what you need to have in place before doing it.

There are some great benefits to paying off your debt as quickly as possible. Prioritising it over other expenses is a great idea to rid yourself of the burden of owing money. Embracing an accelerated debt repayment strategy can mean that you’ll release yourself from debt early and save money in the long run. We’ve got some guides on how you can approach an accelerated debt repayment focus.

1. Why pay off debt as fast as possible

While loans can be helpful, it’s important to remember that repayment models aren’t structured in your best interest, but rather the lenders’. The minimum payments that you must make each month, plus the interest which is added on, continues to compound the ‘value’ of the money you owe, therefore preventing you from saving that money.

If you can pay off your debts as quickly, you can then use your monthly repayment amount and interest that would’ve been costing you as a savings opportunity. Just because there is a ‘minimum payment’ amount, it doesn’t mean that it is all that you should pay — hence the name ‘minimum payment’. If you have additional disposable cash that month (perhaps you received a bonus at work or a friend paid you back on some money you lent him), use those additional funds to make a larger repayment that month. For example, if your minimum payment on your loan is R500, try and see where you can add an additional R100 and make an R600 repayment.

Once you have alleviated yourself from debts using an effective debt repayment plan, you can begin to build wealth through savings and investments.

Where interest fits in

Due to this, it’s good to note that even a ‘favourable’ interest rate does not mean that it is beneficial to your financial wellbeing. Any interest rate is an ‘additional’ cost on top of your capital amount. Any type of interest — no matter how big or small — works against you, not for you.

And this interest is what prevents you from building up savings, which, as we’ve covered, can help with unforeseen costs, such as vehicle or home maintenance, or any unexpected expenses. This is where your savings should be used, but if you don’t have savings because you’re constantly paying off debts, you’ll end up taking another loan and therefore growing your debts. This is the snowball of debt that needs to be avoided in order to achieve financial freedom.

2. What you need to have in place before only paying off debt

While paying any outstanding debts should be a priority, there are things to consider before allocating all your available cash to settling accounts on money that you have borrowed. If you have some finances available, you should look at the following important financial products to benefit your health, lifestyle, and financial security:

The following stages of your life should warrant certain financial products:

Young adult

• Retirement plan – it may sound a little premature, but it’s never too early to start saving for your retirement. Company-sponsored retirement plans are often a great choice, as your employer will contribute to an RA (retirement annuity) on your behalf. If you don’t have access to a company plan, don’t despair. Those who are self-employed have a range of options for setting up retirement plans. Others can open their own IRAs, allowing for a set amount of money each month to be withdrawn from your savings account and contributed directly into your IRA. Even if it’s only a small sum, it will eventually add up to something helpful.
• Health insurance – you may be young and feel invincible, but life is unpredictable. At any stage in your life, having a comprehensive medical aid policy is important, as it will cover you for any disease or unforeseen ailments that could occur, and which cost a lot. Having a basic hospital plan should be the minimum, and various medical insurance companies have tiered plans which cover a wealth of needs that you may have, such as dental, optical, and more.

Married couple

Married couples have an emotional and legal bond, which also extends to having financial trust and cooperation in your partner. Here are some financial products that married couples should consider before tackling their debt with gusto:

• Life insurance – A life insurance policy will assist in providing financial security for your partner or family if any disability or death. Both partners having mutually beneficial life insurance policies is recommended to ensure that any monetary burdens are handled during such challenging periods.
• Household insurance – With any marriage, there is often a consolidation of household assets and items. From furniture to high-value possessions, there’s a lot to account for when people move in together. Having a comprehensive home insurance policy will allow you to not only insure your home, but also your internal household items in case of damage, fire, or any other unforeseen circumstance.

Family life

• Family medical aid scheme – Protecting the health of your family at all costs is the most important thing, and having a comprehensive medical aid scheme that encompasses your children as dependents is recommended.

Retired

• Guaranteed annuity funds – Once you’re retired, it’s a good idea to use a portion of your retirement funds and invest in income-generating annuities, so that you have a steady income for a defined period (Discovery’s Fixed Retirement Income Plan is an example of this kind of annuity).
• Medical aid plan – With retirement often comes an older age, therefore having a substantial medical aid plan will assist with the needs that come with the medical needs later in life.

3. Focus on your budget

Your budget should always be a reflection of the stage of your life, and policies that you are currently holding. Your income and disposable cash will help you determine your spending ability throughout your life, which can change drastically based on your incoming cash, working ability, and varying costs and inflation. Keep this in mind when putting together your budget, as it should be flexible and adapt to changing circumstances.

Whatever your financial plan, the key to ensuring that it’s effective is to see it through. Committing long-term to budgeting and saving, whether it be for investment purposes or to clear debt, can be tricky, but having consistency with the plan can mean that your financial goals are met.