|Combination of low interest rates and high inflation benefits the over-indebted|
Now is the time to tackle debt and not to give in to the temptation of luxury living
The unchanged prime rate, as announced by Gill Marcus, governor of the South African Reserve Bank, yesterday, may not be what over-indebted South Africans wanted to see.
There is some good news, however.
Over-indebted South Africans can in fact benefit by the low, unchanged interest rate combined with the current high inflation rate.
This is the best time to rid yourself of debt. The value of debt is calved away by inflation. The real prime rate is currently only 2,9% and will decrease further as inflation increases.
For example, should inflation increase to 7%, but the prime rate remains at 9%, the real prime rate drops to a mere 2%. As the real cost of money (over inflation) decreases, consumer debt is in fact lessened because real cost of money drops from 2.9% to 2%.
This means that now is an excellent time to reduce your debt as fast as possible. So, if you have money to spare or if you should receive an increase in the foreseeable future, use that to pay off your debt faster. In that way you can capitalise on the current scenario.
UASA urges its members and South Africans in general to tackle their debt and not fall for the temptation of luxury living.