Reckless borrowing. We've all heard about it, we all know what it means, but many South Africans tend to ignore the problems it causes. But what does reckless borrowing truly cost you in the long run? On this week's Be Financially Smart feature FNB's Head of Consumer Education Program, Eunice Sibiya, discussed the long term implications of reckless borrowing and how they can have serious implications on your financial future.
Reckless borrowing or spending refers to unplanned situations that are usually for things that are a want and not necessarily something we need— Eunice Sibiya, FNB Head of Consumer Education Program
Reckless borrowers are often unable to meet monthly expenses because loan repayments outweigh monthly income. This causes an overwhelming feeling of desperation.
The pressure of the situation drives some people to make new debt in order to pay old debt. These loans all carry additional fees and interest rates that increase monthly repayments.
According to Eunice, these are the top 3 steps you can take to get out of debt and curb your appetite for loans
Calculate all your debt and pay extra every month
The first step to take is to calculate all your debts and the interest rates that you are paying on each of them. Simply paying the minimum payments on your loans every month will not reduce your loan repayments quickly enough. So check the terms of your loans and where possible, pay a little extra to cover the cost of your loans.It's also a good idea to start paying off the loans with the higher interest rates first.
Consider a debt consolidation loan
If you find yourself unable to meet the monthly repayments on each of your loans, you may want to speak to a financial adviser about consolidating your debt. Debt consolidation is a great way to manage your interest rate payments because you essentially put all your outstanding debt into one loan account. This will help you to reduce your monthly repayments and increase your disposable income.
Stop spending recklessly
As you keep paying off your debts and increasing your disposable income, it's important to not use that extra money you left recklessly. This will only make your financial situation worse. Rather focus on paying off your debts as quickly as possible so that you can start saving and investing your vital monthly income.
You need to know where you stand financially so you know what to fix. Make sure to get your free yearly credit report"— Eunice Sibiya, FNB Head of Consumer Education Program
Listen to the full audio below: