Over-indebted consumers can heave a sigh of relief as South Africa’s first interest rate cut has been announced for this year. The South African Reserve Bank’s announcement indicated a slight drop of 25 basis points.
“Although the decrease does not help those with investment savings, over-indebted consumers can use the interest rate drop to reduce their debt,” says Matthys Potgieter, spokesperson and debt expert at DebtSafe.
“Consumers can really save a few rand on their home loans,” says Potgieter. “If a consumer has a home loan of R1 000 000.00, the decreased Repo Rate of 0.25%, gives a decreased amount of R166.21 a month on his/her monthly instalments. And paying that money into his/her bond on top of the new instalment will lead to:
- A total saving of R80 511.18, over the full term of 20 years.
- Twelve months earlier settlement.”
Consumers that have a personal loan or credit card won’t be saving very much per month, but according to Potgieter, it all adds up in the end. “If a consumer has a personal loan of R20 000.00 for example, the decrease of 0.25% on the Repo Rate gives a decreased amount of R2.47 per month on the consumer’s monthly instalments,” explains Potgieter. Paying that money along with the saving on a home loan instalment, into a personal loan on top of this new instalment, will lead to:
- A total saving of R1 922.38, over the full term of 60 months.
- Twenty months earlier settlement.”
Potgieter also advises consumers / homeowners to pay the extra cash that they save into their home loans instead of splurging it on unnecessary items. Over-indebted consumers can make use of thesnowball principle by paying off their smallest debt first (like a clothing account); or they can use theavalanche method – where they add the money to help pay off their debt with the highest interest rate first, like a credit card.
This announcement can be the ideal helping hand for indebted consumers to try and lower their debt piles. In worse case scenarios, over-indebted consumers can consolidate their debt into one affordable payment through DebtSafe’s debt management program. They can send a free SMS with their name and the word, INFO to 30898 for a free debt assessment.