WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2008-04-20 Time: 00:00:00 Posted By: Jan
The one thing that, more than any other, makes anyone’s financial plans go badly awry is debt. As long as you have debt, you will not be able to build up wealth.
You must make debt repayment a priority.
This is not to say you should not borrow money at all. There is some good debt. If you borrow money to buy what is called an appreciating asset, which you can normally expect to go up in value, you can strengthen your financial position.
An appreciating asset is any asset which gains value while you own it.
| Make debt repayment a priority |
A home is a good example of an appreciating asset. Most homes, over time, improve in value. You would have to spend many years saving and paying rent before you would be able to buy a home of your own or a property for cash.
The only option is to borrow money. But you should repay the debt as quickly as possible.
Avoid borrowing to buy any asset that depreciates in value. This applies to such things as furniture and even to motor vehicles.
Interest charged on depreciating assets such as hire purchase on furniture tends to be much higher than interest charged on appreciating assets like a home loan.
The very worst type of debt is money you borrow to buy things you consume, like food, clothes or entertainment.
These are things that have little or no resale value. If you are borrowing to pay for things you consume, you are in serious financial trouble.
Many people do not realise they are borrowing to pay for what they consume when they use a store card, a credit card or even a shop account and do not pay back all the money owed every month.
After a month, in most cases, you will be paying interest on an outstanding balance. Once you have to pay interest or cannot pay an account in one month, this is debt.
Often the problem with debt is that it is just too easy to borrow.
Switch on a television set, open a newspaper, read the junk mail that clutters your mailbox, go window shopping, read letters from your bank: everywhere people want to lend you money. But remember they want it back.
There are eight major warning signs of being too deeply in debt.
These are:
There are two main areas where people fall into the debt trap. These are the misuse of credit and store cards, and variable-amount home loans.
Danger zone 1: Credit cards
Credit and store cards are fast becoming public enemy number one for people who tend to overload themselves with debt.
You must see credit cards as cash you have not earned.
There are a number of major problem areas with credit and store cards. These include:
Secured debt is debt in which you pay off your home or a motor vehicle where your home or the motor vehicle are the security.
In other words, the bank will repossess your home or car if you do not pay up. Unsecured debt is given to you almost exclusively on what is called your credit-worthiness.
If you are considered a good credit risk because you always pay back debt on time, you will be able to borrow more money at a lower interest rate.
If you are considered to be a bad credit risk, the amount of money you can borrow will be restricted and you will pay higher interest rates.
If you do not repay unsecured debt, you can be taken to court and any or all of your possessions can be taken away from you.
Danger zone 2: Variable home loans
These are home loans which you can use as a ready source of money.
Increasingly, all of us are using variable home loans to fund any shortfall of money that we have.
In other words, there is less need for us to discipline our spending habits, as we can fall back on any slack in our home loans.
The consequence of this is that when interest rates go sky high, as they tend to do in South Africa, many people lose their homes because they can no longer afford to pay the high interest bills.
By maintaining a high level of home loan debt you are also spending a fortune on paying interest. As long as you are paying interest you will not be building wealth.
The Golden Rules
If you want or need to use a credit card you must follow ten golden rules.
Rule One:
Always repay the full amount due. Never make the minimum repayment. The reason is that the minimum repayment required by your bank is basically only the interest you must pay on the debt you have built up. So if you only repay the minimum, you will never get rid of your debt.
Rule Two:
Never use the “budget” section of your credit card. This is definitely not a way of budgeting. It is a way of getting deeper into debt.
Rule Three:
Do not see a credit card as a status symbol. See credit cards as a potential symbol of debt.
Rule Four:
Never have more than one credit card. Every card has its credit limits which you will be tempted to use.
Rule Five:
Remember that credit card interest rates are punitively high.
Rule Six:
Never impulse shop with a credit card. Credit cards make for impulse shopping but this will have a very negative effect on maintaining your budget.
Rule Seven:
Only use your credit card to pay for things for which you have budgeted.
Rule Eight:
Never use a credit card for a cash advance unless you keep your credit card account in credit. You will pay interest from the moment you borrow money on your credit card. Remember this also applies to buying petrol on your credit card. This is counted as a cash withdrawal.
Rule Nine:
If you already have credit card debt, consider paying it off with money you can borrow elsewhere at a lower rate, and then pay off that debt too.
Rule Ten:
Destroy your credit card now if you find that you cannot restrain your use of the card. If you need a credit card for convenience or security you can ask your bank to reduce the credit part of your credit card to zero or a low amount, such as
R1 000, forcing you to keep your card in a credit balance.
In other words, it becomes a real credit card, not a debt card.