Can we save and pay off our debt?
Everyone’s financial circumstances are different. Yet, what we are certain of in South Africa, is that most people have debt and limited savings.
To answer the question of: Can one save whilst paying off debt? The answer is yes. But we need to look at why, when and how we do this.
Debt is not cheap. Credit costs money, and the interest rates that you are paying on your debt should play a significant role in your stance whether to save, and how much to save.
Credit cards and personal loans come with huge interest rates ranging on average between 10% and 25%.
No savings account is going ot give you those rates. So it would be advisable to get the debt wiht the highest interest rates paid off first, with minimal savings – and then when those debts have been paid – funnel those debt repayments into paying off more high-interest loans or into puré savings and investments.
That being said, the pandemic has shown us the dire consequences of having no emergency fund in place. Ideally, the rule is that one should have 3 – 6 months worth of income as savings. Realistically, this is a stretch for most.
Apart from a retirement fund (which caters for the later stages of your life) you should have an emergency savings fund that you have access to quite quickly, should there be an immediate need.
I would suggest that there be a balance between additional money spent over and above minimum repayments, on outstanding unsecured debt, and savings.
First make sure that the minimum required amount on all your debts are paid. (It makes absolutely no sense to have savings, at the expense of skipped payments and negatively affected credit reports)
If you then have a R500 available – split that between making an additional payment of R250 on a high-interest debt, and the other R250 can go towards your savings.
We can, and should save whilst paying off our debt – but should always remembre that there is no ‘one-size-fits-all” solution. But just getting into the mindset of paying off your debt, along with trying to save money – is a huge step in the right direction.
If you are struggling to pay the minimum amount required on your debt every month,then perhaps it is time to look at some debt relief options, including debt review.
Contact us today.