WHERE TO GET HELP WITH DEBT
I need help paying off my debts. I receive R9 400 a month, but it is all gone before the end of the month because of my debts.
City Press replies:
There are two different debt levels. If you are still able to meet your payments but are struggling each month, you can look at ways of restructuring the debt and making some changes to your lifestyle.
Ask for assistance from someone at your bank – most banks have a division that helps with debt restructuring.
You can also discuss a repayment plan with your credit providers or use the services of the National Debt Mediation Association.
If you are unable to meet your debt repayments, you may need to consider debt review, where you negotiate with your credit providers to pay less each month.
This is legally binding on the creditors and if you are meeting your new negotiated payments, they cannot take legal action against you.
While you are under debt review, you may not make use of a new credit provider. A debt counsellor can help you find out if you qualify for debt review.
WHEN IS A WILL VALID?
Is a will valid if two people witness it, or does it have to be notarised?
RONEL WILLIAMS, CHAIRPERSON OF THE FIDUCIARY INSTITUTE OF SOUTHERN AFRICA, REPLIES:
This is a straightforward question, but the answer is less so. A will that is signed by two witnesses will be valid, provided that:
. The testator signed the will in the presence of the two witnesses;
. The witnesses signed in the presence of the testator and each other; and
. The witnesses are competent – that is, they are 14 or older and competent to give evidence in a court of law.
This answer is based on the testator having signed the will by way of a signature. If they did so by way of a mark, or if someone else signed on their behalf and on their instruction, a commissioner of oaths has to issue a certificate confirming the identity of the testator and confirming the will is that of the testator.
The commissioner must sign each page of the will, other than the one on which his certificate appears.
CASH IN THE PENSION OR SELL THE CAR?
I owe R300 000 on my car and I am struggling to pay it off each month. I am changing jobs and could use my pension and a personal loan to settle the debt. Should I reinvest my pension, or sell my car and buy a cheaper vehicle?
City Press replies:
While there is the temptation to cash in your pension to settle debt, there are significant long-term consequences.
In effect, you are taking an investment that may grow over time to pay off something that devalues every day.
The problem with drawing down on your pension is that it is very difficult to get back to the position of having the original R300 000 invested.
For example, if the fund you are invested in now grew by 10% each year, your money would double in value every seven years. So, R300 000 would be worth R600 000 by 2024.
It would be very difficult within the next seven years to save additional funds each month – over and above your regular pension contributions – to catch up the R600 000.
The older you get, the less time you have for your money to grow.
You will also pay tax on the amount, and remember that, at retirement, you will lose your R500 000 tax-free withdrawal.
The tax-free withdrawal at retirement is less any withdrawals you have already made when changing jobs, which means that, if you did withdraw the R300 000, you would only have R200 000 tax-free at retirement.
Investigate the option of selling your car and buying a cheaper vehicle.
In previous articles, City Press showed that lower monthly instalments and lower insurance costs on a cheaper model may be more cost-effective, even if you have to take out a short-term loan to bridge the gap.
It is worth speaking to your bank about your various options.
HOW MUCH CAR FINANCE CAN I AFFORD?
I am a 29-year-old man with an income of R7 000 a month. I would like to know my options with regard to financing a car and how much I can afford without getting into debt.
City Press replies:
Car finance is the leading cause of financial stress for many young people, so it is extremely important not to overcommit.
Affordability depends on each person’s living expenses, so you need to make an honest account of your expenses each month and see how much you have left over for a car.
You then need to find out about insurance and petrol costs to have a clear idea of how much the car will really cost you. Remember, the repayments are only a portion of the monthly cost.
Ideally, you need to aim to pay off a car over 48 months, otherwise you owe more on the car than it is worth – and if you got into financial difficulty, it would be difficult to sell the car to settle the debt.
Also, avoid a balloon or residual payment, otherwise you may not end up owning the car.
Instead of rushing into buying a car, rather save the money from your budget that you plan to use to finance the car and use this to secure a deposit of at least 10%.
This will save you when it comes to the repayment of interest, and you could qualify for a lower interest rate.
Most banks have an online calculator that gives you an idea of your repayments.
. Based on the Absa calculator, a car valued at R60 000, with a R6 000 deposit paid off over 48 months, would cost you R1 500 a month in instalments.
. Add on insurance and petrol – we are assuming an extra R1 000 a month for these costs.
. That would be R2 500 a month, or about 35% of your income.
This is a fairly high commitment, but if you are paying the car off over 48 months, you will be debt-free in four years and able to use that money for other goals, such as buying a home.
That is why it is important to try to pay off the car as soon as possible.
If you financed that same car over five years, or 60 months, the repayments would reduce to R1 300 a month (R200 less each month), but you would pay R4 000 more in interest over the period and have the car finance coming off your budget for a whole additional year.
Keep in mind that, if you saved R1 500 a month for a year, you would have an R18 000 deposit.
So, try to save for as long as possible. Be wary of any financing promises by dealers – they are offered to customers so they buy a more expensive car and finance over a longer period of time.
SHOULD I MAKE A RENT-TO-OWN CAR DEAL?
I really need a car, but I am under debt review. Do you think a rent-to-own car deal would be beneficial for me?
City Press replies:
You need to be careful with rent-to-own car deals.
Under the agreement, you typically pay a nonrefundable deposit of about R10 000 to R14 000. You then pay a monthly rental amount and, at the end of the rental period, you own the car.
There are several problems with this concept.
Firstly, you pay far more than the car is worth or than what you would pay if you financed this car.
Because the product is aimed at people who cannot access credit, the rental agents charge as much as they like because people are desperate.
Secondly, if you are unable to meet your monthly rental amount, you will lose your deposit and, usually, all the money you have paid up to that point.
Considering that you are already in financial stress, by entering the rental agreement, you could put yourself in deeper financial trouble.
Anyone looking to enter a rent-to-own deal must read the terms and conditions very carefully and only work with a reputable company.
Do your research to see if there have been any complaints about the company.