Living debt-free is a goal many of us strive for, but the reality is that very few of us earn enough money to buy life\u2019s important assets, such as a home, car or university education, with cash savings.<\/p>\n
Secondly, even if you could live debt-free, it might not be the savviest financial choice to dig into your life savings and leave yourself without any financial backstop in an emergency, or cash to invest for your retirement.<\/p>
\u201cMost of us are raised to believe that all debt is bad, but this is not necessarily true.<\/p>\n
\u201cIt all comes down to whether or not the debt you are incurring is good debt or bad debt, and there is a very distinct difference between the two,\u201d explained Nkazi Sokhulu, CEO and co-founder of Yalu.<\/p>
\u201cGood debt is used to generate long-term value that provides you with an asset at the end of your loan term and increases your net worth. In other words, it has some investment value.<\/p>\n
\u201cThink of a bond used to purchase a home \u2013 with low interest rates and as long as you bought wisely, your property should grow in value so that at the end of the loan, you have a tangible asset with a monetary value that outpaced what you originally paid for it, including the interest on the loan.<\/p>\n
\u201cA student loan is another example \u2013 getting a tertiary education is likely to secure you a higher future income as a skilled individual.<\/p>\n
\u201cIf you\u2019re in a position to obtain part-time work while studying, make a point of paying off as much as you can afford on your student loan each month.<\/p>\n
\u201cThat way by the time you start your professional career, your loan could already be paid off, or at a minimal balance \u2013 which is a huge head start in life.\u201d<\/p>\n
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ALSO READ:<\/span><\/p>\n Become a better saver \u2013 top five savings tips<\/a><\/p>\n Four tips for secure payments from a mobile wallet<\/a><\/p>\n <\/p>\n A car is an asset that most people cannot afford to purchase without vehicle finance.<\/p>\n \u201cAlthough a car is a depreciating asset and the interest rates on the loan are typically higher, it\u2019s essential for most people to get to work and transport their families around, given the parlous state of public transport in South Africa.<\/p>\n \u201cThe best thing you can do is to pay in extra every month over and above your instalment to reduce your outstanding balance as quickly as possible and save on high interest-bearing monthly payments,\u201d said Nkazi.<\/p>\n Bad debt typically has high interest rates and is usually incurred to fulfil a want, rather than a real need and does not leave you in a better financial position.<\/p>\n Good or bad, too much debt of any kind can leave you trapped in a financial crisis.<\/p>\n If you are considering taking on any type of debt, do a thorough financial assessment and make sure that you can afford the repayments and the costs that come with the credit finance.<\/p>\n Pay special attention to the terms of the loan, and any special conditions, the interest rate and the cost of credit life insurance, which most loan providers make mandatory as a condition of the loan.<\/p>\n \u201cMake sure that as much of your instalment is going towards paying off your loan amount rather than funding overpriced credit life insurance.<\/p>\n \u201cCredit life insurance provides the security for your debt should you become unable to service your loan repayments due to death, disability or retrenchment.<\/p>\n \u201cCredit life insurance will pay the total remaining balance of the loan in the event of death or permanent disability, or it pays monthly loan instalments in the event of temporary disability or retrenchment. The number of months covered varies from provider to provider, but the legal requirement is 12 months.<\/p>\n \u201cWhat you may not know is that you are not obligated to take this insurance cover with the loan provider and that there are more affordable options with better benefits available,\u201d said Nkazi.<\/p>\n Make sure that you understand the financial implications of any debt you plan on taking on, and always ask yourself whether incurring the debt will improve your financial future.<\/p>\n If the answer is no, then you\u2019re better off without it.<\/p>\n For more information go to www.yalu.co.za.<\/p>\n <\/p>\n Hav<\/strong>e a story?<\/strong><\/p>\n Contact the newsroom by emailing: Melissa Hart (Editor)\u00a0<\/span>germistoncitynews@caxton.co.za <\/a><\/strong>or Leigh Hodgson (News Editor)\u00a0<\/span>leighh@caxton.co.za<\/a>\u00a0<\/strong>or Kgotsofalang Mashilo (journalist)\u00a0kgotsofalangm@caxton.co.za<\/strong><\/a><\/p>\n Remember to visit the Germiston City News on the following social media platforms:<\/p>\n Facebook<\/a><\/strong><\/p>\n Twitter<\/a><\/strong><\/p>\n Instagram<\/a><\/strong><\/p>\n YouTube<\/a><\/strong><\/p>\n Or add the GCN on\u00a0<\/b><\/span>WhatsApp 079 406 1181<\/strong>\u00a0<\/span>or\u00a0BBM (BBM Pin: 7F102137)<\/strong>\u00a0<\/b><\/span>today, to get all the latest news.<\/p>\n Catch-up on more local news with our sister newspapers\u00a0<\/span>Bedfordview Edenvale News<\/a><\/strong>,\u00a0<\/span>Alberton Record<\/a><\/strong>\u00a0and\u00a0<\/span>Kempton Express<\/a><\/strong>.<\/p>\n