Rynhardt de Lange, Director and Head of Legal at Milaw Legal
According to a recent report by analytics company Eighty20, South Africans face an alarming financial reality: the country’s debt-to-income ratio is a shocking 54%. For middle-class workers, that number jumps to 56%, and even the wealthiest segment, known as the “Heavy Hitters,” carry an astounding 63% debt-to-income ratio.
With an impending petrol price drop this week and a recent interest rate cut, financial relief is on the horizon, Director and Head of Legal at Milaw Legal Rynhardt de Lange cautions that this is a critical moment for consumers to take action on reducing their debt.
“This is a pivotal point for South Africans to make headway in reducing their debt,” says de Lange. “With fuel costs set to drop and lower interest rates providing breathing room, the best thing consumers can do is scale down their debt load before conditions tighten again.”
According to De Lange, now is the ideal time to act. While the economic outlook is temporarily bright, it’s crucial to avoid common financial pitfalls when trying to reduce debt. He shares five key mistakes to avoid during this period of financial relief:
1. Avoid Taking on New Debt
Even with lower interest rates, adding new debt only increases long-term financial pressure. “Consumers should resist the temptation to open new lines of credit or finance major purchases during this time,” advises De Lange. “Focus on paying down existing debt instead.”
2. Don’t Ignore Your Budget
Now more than ever, it’s essential to revisit and tighten up your budget. “With savings from lower petrol prices, it’s easy to increase spending, but those savings should go straight into repaying debt,” De Lange warns.
3. Avoid Paying Only the Minimum
Sticking to minimum payments may seem manageable, but it only prolongs debt and increases the amount of interest paid. “Whenever possible, pay more than the minimum,” suggests De Lange. “Even small additional payments can make a big difference over time.”
4. Don’t Overlook High-Interest Debts
Prioritise repaying high-interest debts like credit cards or payday loans. “These types of debt are the most expensive in the long run,” explains De Lange. “Paying them off first frees up more money to tackle other obligations.”
5. Avoid Depleting Your Emergency Fund
While paying down debt is important, De Lange stresses the need to maintain an emergency fund for unforeseen expenses. “Having an emergency fund is essential to avoid falling back into debt if unexpected costs arise,” he says.
With petrol prices dropping and interest rates easing, now is the time for South Africans to take charge of their financial futures. “We may not see another break like this anytime soon,” De Lange concludes. “The best way to prepare for future challenges is by lightening your debt load now.”
“By taking proactive steps to reduce debt now, South Africans can pave the way for a more secure financial future. Remember, it’s not just about surviving; it’s about thriving in a challenging economic landscape,” de Lange.
ENDS
