Should you save when you have debts to repay?

“I have a total debt if R63 000 with various credit providers. I have thought that I should start saving but not when I am under such debt. I would like to consolidate them but I am wondering with which institution. Is there one that you can recommend?” asks Andrew.

Maya replies: There are really two issues here. Firstly should you channel money into savings when you have lots of debt piling up? Secondly, how do you consolidate that debt?

Saving vs debt

Financially it makes sense to pay off your debts first before saving. This is because you are paying anywhere from 15% to 30% for short-term debt and at most you would grow your savings by 12% in the current markets, so effectively paying off your debt provides a better return.

However financial coach Linda Smith makes the point that putting money away for savings is a more positive process mentally than always focusing on the negative of debt. Saving also allows you to build up a safety net so that if you run into difficulty you are not forced to take on more debt.

A good strategy could be to consolidate your debt and whatever saving you are making put half into paying off your debt faster and half into a savings account – even if it is just R100 a month.


In terms of debt consolidation it all comes down to who offers the best rate and the best fees. This will depend on the institutions appetite for providing loans as well as how they view you as a credit risk.

There are three things to consider: the interest rate, the administration fee and any insurance policies required.

Thanks to the National Credit Act it would be quite easy for you to see the total amount that you will pay over the period including fees, interest and insurance so you will be able to make an informed decision.

On the topic of insurance, some institutions insist on life insurance to cover the value of the loan, commonly known as credit life. Find out if you have existing insurance on your other loans and transfer that cover to your new loan, alternatively ask the credit provider to give you a new quote to see if they can offer a better rate. You are entitled to shop around for your quotes or to cede any existing cover.

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