select
|

Good and bad debt and how to manage it

Just Property have recently launched a first-to-market educational campaign that enables them to capitalize on the large number of residential tenants flowing from their expansive letting portfolio – a trait quite unique to their group – allowing them to approach tenants to guide and mentor them towards responsible and sustainable homeownership.

According to Paul Stevens, CEO of Just Property, “We have realized that many of our tenants have never believed in owning their own home or thought it might actually be possible; whether it be from a lack of know-how, a bad or negative credit profile, little or no deposit, and/or insufficient affordability”.

A key feature of the homeownership journey is the responsible management of debt. Tenants participating in the Just Property Homeownership Journey will be given access to a free mobile budgeting tool to track their spending. The app is available from www.mobile2budget.com. Tenants are able to create a monthly budget, capture expenses on the go and check on a regular basis if they are living within or beyond their budget. The budgeting tool is made available to tenants to help avoid falling into the debt trap.

Good and Bad Debt, and how to Manage it

Good debt is generally debt that attracts a tax deduction because it has been used for a tax-deductible purpose such as acquiring an income-producing asset like a rental property or shares. In our current low interest rate environment that may not sound like much but it has a dramatic effect over the longer term. Some examples of ‘good debt’ are:

  • Mortgage bond debt
  • Your education
  • Your Business

    Bad debt makes you poorer and is the dependence on credit card expenditure, store card car credit, car loans and anything that is a lavish expense such as holidays and furniture used to buy liabilities.

    It is advisable not to risk real estate if the business is in a weak position within the market. When you offer real estate as collateral, you should have a solid business position. Prudent business owners will carefully consider whether to borrow on their equipment to finance ongoing operations or expansion. It is important to have a strategy not to accumulate any more bad debts.

    Step 1 – Make a list of all your consumer (bad) debts. This includes credit card, car loans, school loans, home improvement loans on your personal residence and any other bad debts you have acquired. You can even include your home mortgage in this list. 

    Step 2 – Next to each items listed make 3 columns:            

  • Amount Owed
  • Minimum Monthly Payment
  • Number of Months 

Enter the appropriate numbers into each column. To arrive at the number of months, simply divide the amount owed by the minimum payment. 

Step 3 – Based solely on the Number of Months begins ranking each debt. Put a “1” next to the lowest number of months, a “2” next to the 2nd lowest number and continue up to the highest number of months. This is the order that you will be paying off your various debts. 

Step 4 – Pay the minimum amount on every debt you have listed EXCEPT for the one you’ve marked with a “1.” On this first debt to be paid off, pay the minimum amount due plus the additional R800 to R1500. Keep doing this each month until your first debt is paid off. Scratch that first debt off your list. 
 

Step 5 – Pay the minimum amount due on every debt you have EXCEPT for the one you’ve marked with a “2.” On this debt, pay the minimum amount due, PLUS the entire amount you had been paying on debt #1. For example if on debt #1 your minimum amount due was R400 and you added the additional R800 then you were paying a total of R1200 each month. On debt #2, if the minimum amount due is R500, you will now pay R500 plus R1200 or a total of R1700 per month. 

After a debt is paid off then take the total amount you were paying on that debt and add it to the minimum amount due on your next debt to get your new monthly payment. You will be amazed at how quickly this amount adds up and how quickly your credit cards, car loans, etc. are paid off. Continue this process until all the bad debts on your list are paid off. 

Step 6 – By this time the monthly amount you are paying on your last debt is likely to be quite substantial. Keep paying that amount every month. Except now – instead of paying it to creditors – you pay it to yourself for only one type of purchase: assets that give you positive cash flow each month. You will be out of the Rat Race faster than you ever dreamed! 



  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 23 Feb 2018
      RE/MAX Property Associates’ Table View Office, which services property buyers and sellers along the Table Bay coastline and surrounds, has recently sold a home in Woodbridge Island for R11 million – the highest price paid for any home in the sought-after security complex.
    • 23 Feb 2018
      Choosing to invest in an overseas property can be daunting. But as more and more investors recognise the value of a diversified portfolio that includes property outside of their own country of residence, international property investment is growing in popularity.
    • 23 Feb 2018
      The positive change in South Africa’s political landscape is paving the way for an upswing in the local property market.
    • 22 Feb 2018
      An excellent credit score is one of the most priceless assets a potential home buyer can have. This tool has the power to secure favorable mortgage and refinancing rate, influencing everything from the size of the loan repayment to the interest rate on the home loan.
    • 22 Feb 2018
      What do you do if you love your home’s location and the area, but the home no longer fits your growing family’s needs? Do you stay and renovate your existing home or find a home that meets your developing criteria?
    • 22 Feb 2018
      While every owner wants to sell their property at the best possible price, overpricing a home can be the kiss of death for a sale.
    • 21 Feb 2018
      Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
    • 21 Feb 2018
      The real estate mantra, ‘location, location, location’ remains a strong market influence regardless of the prevailing economy, with suburbs like Rondebosch enjoying the buffering benefit of being ideally situated.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK