Debt is easy to amass. However, many people struggle with managing their finances simply because they do not know how to do so. Speaking to a financial consultant and learning about the tools available to assist in managing debt is critical as one embarks on the path to financial wellness. Credit cards, overdrafts and personal loans can offer relief to those in immediate need of cash. However, these should always be used responsibly, as they generally have high interest rates and could add to one's debt burden despite providing temporary relief.

Keys to Debt Management

Over the last two issues we have discussed the daily management of money and have addressed opportunities for achieving your dreams. We would be remiss if we did not spend some time on the primary obstacle that reveals itself in the attainment of our dreams - debt. Before you make any investment decisions, whether it be to buy gold, take out a mortgage or even something on a much smaller scale, you will want to be debt-free, or at least have your repayments under control. It is so easy to amass debt, but takes deliberate choices and commitment to prevent it overwhelming your life. In this article we will address some keys to managing your debt as well as some fabulous options that banks can offer you in this crusade.

"Few people realise the benefits to be gained by merely taking control of their finances. By knowing how much you owe, you are able to determine how much you can actually afford to spend once the bills have been paid. As simplistic as this might sound, this is the first step towards gaining control over your finances," says Georgina Ross, product manager of FNB's One Account.

By managing your debt, you will know where your money is going. It will also help you figure out crucial details like whether your expenses exceed your income, and what portion of your income is dedicated to paying off debt.

Another rule of thumb in managing debt is that the term of repayments on any purchase should not be longer than the length of time that you will receive value from it. So, if you take the family out to a local restaurant once a month, by the time of your next outing, that bill should have been paid off.

Yet another tip for the financially savvy is to keep track of the interest rates charged on your various accounts. By knowing how much interest you are being charged on your various retail and credit cards, you will be able to focus on paying off the accounts that charge the highest interest first, with the low interest earners being paid off last.

Every person has a right to financial wellness. Knowing about what is available out there and how to make your hard-earned money work for you is critical in achieving the financial wellness you deserve.

Six Keys

Understanding "good" debt

There is in fact a concept of good debt - borrowing money to buy a home, or to finish your education. This type of debt facilitates the development of an asset that will appreciate (grow) as the size of the debt decreases as opposed to a debt that is quickly gained and used but has no long-term benefit to yourself or family.

Bad Decisions

Before you take out a loan, consider the opportunity cost. Do you really need that new car, dream holiday or second home? Instead, use that money to either pay off other loans, such as your home loan, or invest it somewhere where it can build your wealth. Another bad decision lies in the ways that you utilise your credit. Using your credit card to pay for consumable items like meals or vacations that you couldn't afford otherwise can increase your debt quickly and leave you little to show for it. If you can't pay off something over the next two months that you want to pay by credit card, you probably cannot afford it now.

Controlling your Spending

If you don't spend, you don't owe! So many times, we spend thousands but have no clue where that money has gone. A fabulous exercise is to track your spending. Keeping track of where your money is being spent could reveal over-spending on things such as entertainment, alcohol or clothing. This type of exercise quickly reveals where your money goes and can quickly show you how redirecting this money can result in a great saving plan or paying off other debts sooner. If, for example, you find that you buy a cappuccino and muffin each work day, at R15.95 per drink and R12.95 per muffin - you are spending approximately R600 per month. Place that in a savings account or into your loan and see the impact on your accounts - not to mention the impact on your waistline. Enough said!

Focusing your Payments

What debt do you focus your payments on? Some experts encourage you to pay off the smaller debt first, despite the interest rates. However, paying off the debt with the highest interest rate first can save you thousands. Debt with higher interest rates grows quickly. By not paying them first, you will take much longer to pay off the debt. This does not mean that you focus on some payments and ignore others. It is critical that you pay at least the minimum amount on all your debts and then additional monies can go against the debt with the higher interest rate. The best option is to try and consolidate all short term debt into a single month's payment, at the lowest interest rate possible. We will explore two options later.

Minimum Payments

Sometimes you will only be able to pay the minimum amount on your debt - however, if you have some money, pay as much as you can on each debt. The impact of additional payments against your debt markedly reduces the debt over time. This is especially true with your home loan where the capital debt will be reduced, and therefore the interest amount on the capital will reduce.

Asking for Help

This is a big one! So often we feel as though we are overwhelmed by our debt. Asking for help is not a shameful thing to do - it is wisdom. Your bank manager or relationship manager could well have invaluable advice to give you that you may not have thought of before.

The One Account

First National Bank (FNB) understands that saving money and managing it effectively is critical to many South Africans. The One Account from FNB offers more convenient, simpler banking and helps customers manage debt more effectively, while establishing a good credit record.

Essentially, the One Account merges all banking needs (savings, transacting and investing) into a single consolidated account, using the value of your residential property as security. Because the interest rate for the single account is based on the property value and your individual risk profile, you are able to have reduced monthly payments and, because your income is deposited into the account, you save on interest since your outstanding balance is reduced.

"If you have a lot of debt in accounts with high interest rates, it would be to your benefit to look at a single account, such as the One Account, in which debt can be consolidated at a lower interest rate. Furthermore, a single account takes the hassle out of banking," says CEO of FNB's One Account, Gail Roberts.

To qualify for the FNB One Account, all you need is a home valued at R150 000 and an annual income of R100 000. One Account customers also enjoy the benefits of a single set of charges resulting in savings on interest charges. A single statement, as well as real-time account viewing and updates using any of the wide range of channels offered by FNB, such as Internet Banking, ATM's and Telephone Banking are also available.

The One Account also shows tremendous return on small amounts of savings. For example, should a person give up smoking at R15 per box per day, they will save R5 475 annually, approximately R450 per month. This saving could be maximised if the person puts this additional money into their One Account every month to help reduce the outstanding balance.

If an average customer has a secured facility of R200 000 in their FNB One Account and they manage to repay an additional R450 per month (i.e. the money saved from quitting smoking), they will save R126 211 in interest payments, and shave 7.5 years off their 20 year loan agreement.

The One Account provides a full suite of transactional facilities, including Internet Banking, a cheque book, debit card and petrol card, all linked to a single monthly statement, making it easier to manage your banking. Since the home secures the facility, additional capital is easily accessed without the need to re-apply for credit. This is generally the cheapest form of debt available since it is secured by a customer's home and therefore attracts a lower interest rate.

FNB also offers its InContact service, which advises you by email or SMS of all transactions on the account, its award winning eBucks incentive programme and free Internet Banking as value-added extras.

Can a Credit Card assist in consolidating debt?

Without a doubt, FNB offers a fabulous Balance Transfer Solution. With the Balance Transfer offer you pay just 9,9% interest per annum for the first six months, whereas ruling interest rates will apply when you transfer your outstanding debt (retail debt, short term loans, personal loans and other credit card debt) into the budget facility of your FNB Visa Credit Card.

Should you wish to have more information, please contact 0860 28 2273 or visit www.fnb.co.za

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