Our online editor spent this past weekend at the Valley Lodge and Spa in Magaliesburg with a group of ladies for a mom-me-time event hosted by former Hectic nine-nine presenter, Asanda Maku. In-between the amazing spa treatments and girl-talk, she was able to squeeze in some time to chat to financial guru Samke Ngwenya, (Private Banker at a leading global private bank.) and talk all things money and savings.
What do banks look for when one is applying for credit?
Basically we look at a client’s income versus their expenses, as well as the debt they currently have and what they are applying for. The credit decision should be based on the financial measure mentioned above, as well as a client’s spending habits, not so much on demographics.
Please explain good debt and bad debt?
Good debt in my opinion is debt that is used towards buying an asset that either grows in value over time (like a house), or that contributes to a client’s progress (like a car). These transactions typically cannot be settled once off from your monthly earnings, hence the need to finance them over time. It is important to note though that since a car loses its value over time, the amount spent on financing it should be minimal.
Bad debt I consider to be unsecured debt, taken out for spending, and typically for transactions that should be funded from a client’s monthly earnings or savings. For example, a store account can be seen as bad debt because it is used to buy clothes or other consumables that one should be using their monthly earnings or savings for. Everyone should aim to have enough savings for emergencies such as funerals, car tyres, etc. and not rely on a personal loan to fund these as it does not make good financial sense. Because unsecured debt is riskier to the bank, it also usually has a high interest rate, thus resulting in wealth destruction.
What would you say to someone who is struggling to pay off their debt?
If someone is struggling to pay off their debt, I would suggest they approach their bank or credit provider and explain that they are struggling and why. They can request help in reviewing the terms of their debt so that their monthly repayments end up being affordable. There is also the option of approaching a debt restructuring expert or a debt counsellor that is registered with the National Credit Regulator. What is very important to note is that a consumer must please rather be upfront with their credit provider instead of waiting to fall deeper into trouble, as their credit rating may end up being affected, thus limiting the options available to assist the client.
5 tips on ending 2014 debt free
Settle your most expensive debt first: Find out what your interest rates are on your various loans, store accounts, credits cards so you will know which one is the most expensive. The higher the interest rate charged, the more expensive that debt is.
Save before you spend: Once you are out of debt or if you do not have debt, remember to save before you spend. Some people think saving is limited to the surplus (if any) you have at month end. You’ll never have money to save if you think like that. A good habit would be to have your debit orders run (it is very important to honour your debit orders), transfer an amount you have decided on towards your savings, and then have that surplus available for your living expenses. This will also help guide your choices so you manage your living expenses ie catch the train to work as opposed to driving everyday, switch off geysers to manage your electricity bill, take a packed lunch to work as opposed to buying lunch everyday, etc.
Set a financial goal: We all make New Year’s resolutions like losing weight, stop drinking and smoking, but how many of us set financial resolutions? It is important to decide what your goal is (ie reduce debt by 50%, have savings of x amount) and then write down what you need to do every month to achieve it.
Check your bank statement every month: It is important to check your bank statement monthly to ensure you agree with every transaction you see and query those transactions you are unclear of. This also paints a holistic picture of your finances and where your money is going. You cannot simply rely on the sms notification you receive per transaction as a record of your financial habits.
Reward yourself: Spoil yourself a bit. If you do all the things above you can spend your money guilt free, you can afford to spoil yourself… you work hard, get yourself that fancy pair of shoes!
