Consumers need to ensure their bond repayment is their first priority this festive season, before any other spending.
Madikizela says the festive season is a time when South Africans tend to go all out when spending, without taking into account the financial and credit risk this presents if they forgo important expenses, such as their bond repayment, to fund holiday travel, entertainment and gifts.This is according to Dr Simphiwe Madikizela, head of special projects at FNB Housing Finance, who says every year they find a portion of consumers miss the end of year or January home loan repayments because of overspending during the festive season.
“It is imperative that consumers look after their home loans as their first priority, which will put them on the front foot in 2016.”
He says the festive season is a time when South Africans tend to go all out when spending without taking into account the financial and credit risk this presents if they forgo important expenses, such as their bond repayment, to fund holiday travel, entertainment and gifts.
“Missing even one bond repayment is very risky from both a financial and credit perspective. It’s not worth risking a good credit score to fund luxuries and festive season spend,” says Madikizela.
In order to make sure you are on top of your most important expenses and honour your bond repayments, he says you need to account for this expense first.
“The main issue with missing even one repayment, is that it is usually a sizable amount in proportion to your salary, and a big monthly commitment, which means falling behind makes it very difficult to catch up again,” says Madikizela.
Missing your repayment will not only increase your balance and interest due, but may also attract legal fees, which will all add up and cost you more in the long run.
To avoid getting into this hole, he says you should put a plan in place on how you will account for your biggest expenses.
“As many people are paid early in December, let your bank know so that they can move the debit order to the early date. This way you aren’t able to miss a repayment, because your home loan will be accounted for as soon as your salary hits your account,” says Madikizela.“Make sure that you have a clear understanding of all your expenses this festive season, start with your most important and write these down, including your bond, car and other repayments that you are responsible for,” says Madikizela.
“Also take into account the fact that there may be big expenses, such as school fees just over the horizon.”
Once this is done, he says to make provisions that the first payment from your salary is towards your most important responsibilities.
One way to ensure you aren’t tempted to miss a repayment is to make sure you set up a debit order with your bank that comes off the same time as your salary hits your account.
“As many people are paid early in December, let your bank know so that they can move the debit order to the early date. This way you aren’t able to miss a repayment, because your home loan will be accounted for as soon as your salary hits your account,” says Madikizela.
Using your year-end bonus and putting it into your bond will also help you keep your home loan from going into arrears.
In future, he says to make provisions so that you have a ‘buffer’ when it comes to your bond. This can be done by pre-paying into the account.
“This means putting a bit extra into your bond every month which will build up reserves, which not only helps you pay it down quicker and save on interest but also give you breathing space if you are faced with unexpected expenses during the festive season, or any other time during the year,” says Madikizela.
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