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change your mindset
deal with your attitudes to money and poverty
deal with your debt
plan your investment strategy,
having funds available now having settled debt to manage your investment
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They are taking a risk every time they lend money, and they minimise the risk by doing credit checks, by checking that you are employed and earn enough to make the repayments. They are not interested in whether you can actually afford to buy this item although as responsible lenders they ought to!
This item you have purchased for 5,000 has probably made over 2,500 profit for the company. If you default on payments they do two things:
Then, when you are listed with credit bureaus, the only route to
borrow money is through micro-lenders. They levy huge levels of
interest, which means you are practically never able to repay
Many families spend over 50% of their disposable income servicing debt (capital and interest repayments).
There are a few key steps:
Having made this conscious decision to delay gratification and only buy what you can afford (that is, already having the money set aside) you will experience enormous financial liberty.
October 2012 - South Africa has been riddled with strike action. Particularly vicious was the miners' strike at Lonmin. It emerged that huge levels of debt were behind the need to get more income. It is a very common South African problem. We point fingers at others as the supposed cause of our problems. The miners were pointing fingers at the employers, "It is their fault that I have all this debt - they do not give me enough money!", forgetting that whenever you point a finger, three fingers point back at yourself. The miners do not understand how they land in such overwhelming debt nor how to avoid it in future. It is likely, as an onlooker, that the increases they have negotiated have already been spent to incur more debt, not to recover from the debt burden.
The body that provides credit does so on the understanding (contractual agreement) that the money will be repaid over the period specified. This is a calculated risk. Statistically only a tiny percentage will default on the repayments. When someone does default, the institution lending the money has certain remedies:
The inability to get more credit is actually a huge benefit, as it forces one to live free of debt. Obviously, in the short to medium term it is important to clear these outstanding debts and restore one's credit rating.
The negative listings with credit bureaux are perceived as a problem.
That is not the problem.
The problem is actually that we disobey the tenth commandment and covet things to own and possess. And we want to have them now - instant gratification.
The opportunity this gives is to learn to live within one's income and plan and budget and save for the things one needs, and to delay gratification until they can be afforded.
Free Download find out
what your debts are / credit is actually costing you.
Look at this illustration carefully:
Look what's happening to your money:
Initially, almost all your money is going to pay interest (middle line), while the capital (dotted bottom line) has very little contribution until quite well through the life of the bond.
The total bond repayments are 2.3 times the capital amount, with nearly 750,000 in interest.
If you decide to repay the mortgage bond over ten years instead, the difference is considerable, with an additional monthly repayment of about 1,700. The capital amount paid remains the same, so the savings are in interest:
CLICK HERE FOR FREE DOWNLOAD CALCULATOR TO SEE WHAT YOUR MORTAGE COSTS YOU.
Just to illustrate, the mortgage repayments to different
interest rates (5%, 10% and 15%) and different durations
(10, 20 and 30 years), the calculations on a bond of
A house bought on a mortgage bond is not yours until the bond has been fully repaid. (Just try not paying for a couple of months and see how quickly the bank takes it away from you!)
Look again where the amortisation of a mortgage bond is shown.
In the first year of the bond you repay 6 times as much interest as capital.
In the fifth year interest is 5 times capital paid,
and in the tenth year it is nearly 3 times the capital paid.
So, if you unlock capital perhaps through a second mortgage or an 'access'-type bond to help you when in a financial squeeze and pay off debts, you are incurring a huge interest burden. For example, after year 5 you draw 56,121 you incur the same interest load again of 262,335, having effectively flushed that money down the toilet.
The only time it makes a little sense is when the economy is booming and interest rates are low then draw the capital and invest it to earn a much higher interest rate than you are paying on the bond repayments.
This is tempting when you feel you need money urgently and you have problems getting credit. Be warned. The interest rate quoted (between 12.5% and 20%) is not annual but monthly. Thus, if you borrow, say, R1000. In the first year you repay R1000. At the end of the year you will still owe R2400. If the next year you also repay R1000 you will still owe R7160. Avoid taking this sort of loan as it is impossible to repay it, and you will get landed with garnishee orders against you salary and other legal action before you know what has hit you.