The credit information amnesty implemented on 1 April 2014, has left many South African consumers confused about what the credit amnesty means for them.
19 November 2014
For many South African consumers, receiving their 13th cheque every December not only gives them a sense of joy and happiness, but also a sense of relief, as it is a lifeline that their financial survival depends on.
The sad reality is, the majority consumers don’t use their ‘extra salary’ intelligently. The typical 13th cheque gets spent on anything from extravagant TV screens to fancy holidays, most of which the consumer can’t afford, but the power of this additional money makes them believe they can.
If your monthly expenses are under control and you can comfortably afford your debt each month, then perhaps you deserve to splurge out over December as you can afford to do so. But with one in every two South African consumers with impaired credit records, unable to meet their monthly debt repayments, the money could be more effectively spent. Here’s how you can use your 13th cheque wisely.
Don’t spend it before you receive it
Many consumers spend their ‘13th cheque’ by buying items on credit, before they even receive their bonus. In tough financial times, businesses may cut back on expenses by omitting annual bonuses. Don’t make this mistake and wait until you have received your money before you decide what you are going to do with it.
Ditch your debt
In order to build a brighter financial future, the first step you take needs to comprise eradicating your debt. Use your 13th cheque to settle any outstanding bills or overdue debt repayments, such as medical bills, school fees or even your hefty outstanding credit card balance. Prioritise your debt repayments by first paying off your most expensive accounts with the highest interest rates. Consumers who fail to meet their debt repayments quickly get caught in the debt spiral, as they will eventually begin to borrow from ‘Peter to pay Paul’. Using your bonus to pay off your existing debt will help you avoid this. If you think your bonus won’t cover your outstanding balances, contact DebtBusters, the award-winning Debt Management company for help
Salvage your savings
If you have struggled to keep up to date with your savings plan or if you have missed your savings goals throughout the year, now is the time to use your bonus wisely and get your savings back on track.
Firstly, if you do not have a savings account, set up an emergency fund so that you are not caught by surprise and end up having to borrow money or short pay on accounts. Allocate a portion of your bonus into this emergency fund to get a head start. If you allocate R5000 into your emergency fund you should get +- 6% return on your investment in a year. Going forward, your monthly contribution into an emergency savings fund will fall under the expenses section of your budget.
If you do not have any debt to pay off and already have an emergency fund, look at boosting your retirement annuity or unit trust by adding in a monetary contribution.
Plan for Jan
Once your overdue debts or payments are up to date or even settled, factor in new expenses into next year’s budget and allocate a portion of your 13th cheque towards those expenses. Car services, university or school fees, increased petrol prices and inflated grocery prices can increase your monthly monetary requirements. Plan for the new year by creating a budget that allows for these expenses and use your bonus to supplement these expenses if need be.
Remember; your 13th cheque is tax deductible and keep in mind that you may not be receiving a full monthly salary.
Author: Damon Sivitilli (DebtBusters Financial Consultant)