Hi, I please need some advice on debt Management. At the moment I am not in a great financial position but I am really trying to get out of it. I have a car that is payed in full but a personal loan of about R80 000 with a very high interest rate. In fact it is a revolving loan. I REALLY want to get rid of the revolving loan. Will it be a good idea to sell my car and close the revolving loan with the money and buy another car with a monthly payment similar than the monthly payment on the revolving loan. Then at least the temptation is not there to keep using the revolving loan for money and then I am paying towards something and not just a loan which seems to be never ending. I hope this is enough information regarding the situation.
There are a couple of ways to approach this. This is what comes to mind:
You could convert the revolving loan into a loan with a set repayment plan so you know exactly the date it will be paid off. Speak to the financial institution and see if they will waive the initiation fees and reduce the interest rate.
If you are struggling to pay off the loan currently, it suggests that you keep dipping into it, this means you are spending more than you earn. You need to do a proper budget and know your living expenses and where you can cut back.
The car wouldn’t be my first option simply because it is a depreciating asset so the day you buy it you owe more than its worth. I am not sure of the value or make of your car but it could perhaps work if you were able to sell it and buy a second hand car and a less expensive model. This could also save you money on insurance and petrol. You can get financing on a car up to about 5 years old. Make sure you only finance it over 48 month maximum.
I would suggest you do your homework on the various options – find out interest rates you would be paying and initiation fees – and make an informed decision.
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