Over the last few weeks stock market crashes and fears of a looming bear market grabbed the headlines. However, except indirectly through their retirement annuities, very few South Africans invest in stocks and interest rates have a much more visceral effect on most people’s finances.

Did you know that half of all borrowers in South Africa have never experienced higher interest rates than those prevailing at the moment? Have you considered the impact on your finances if they should increase even further?

Despite high and rising interest rates it is possible to spend less of your hard earned money on interest payments by following these tips:

• Cut your credit card into a million pieces. A credit card is an unsecured form of debt and the interest rate is therefore very high. Also, it is much easier to buy things that you don’t need if you’re not forking out actual cash.

• Never borrow to cover day to day living expenses or buy consumables. These items may include snacks, groceries, minor clothing purchases, entry fees, toys, etc.

• Re-align the payment date with your salary. By doing this you will avoid late fees and missed payments.

• Make the minimum payment for your credit card by means of debit order. This way you won’t go into arrears.

• Most cards offer 55 days interest free credit. You won’t pay any interest if you buy at the start of the cycle and repay in full by the due date. Even if you know you won’t be able to repay your debt in full you can still save lots and get more time to pay by charging large purchases just after the billing cycle.

  The 55 days interest free period does not apply to petrol or related purchases, cash withdrawals or electronic payments that result in a debit balance. If you don’t pay for these transactions immediately you will incur interest from the transaction date.

• If you can afford to, pay more than the minimum instalment on your loans and credit card.

• Stay within your allocated credit limit to avoid incurring penalty charges.

• Whatever you do, don’t default and keep your credit record squeaky clean! The moment you default on any loan or miss a payment on your credit card you will be classified as a high-risk customer and your interest rate will increase.

  Having a good record puts you in a great position to negotiate for a lower interest rate, especially when you’re looking to finance the purchase of a home or vehicle.

• Pay off your loans with the highest interest first.

• Borrow wisely. Don’t borrow against your credit card or use another method of financing that is more expensive than borrowing against your home loan.

• Consolidate all your debt into your home loan. Because it has a lower interest rate than all other debts you will save a lot. Also, if you have many different loans, keeping it all in one place makes life much simpler.

  Upon receiving a payout from the home loan, begin by settling the short-term debts which have the highest interest rates, and then settle the rest.

  To qualify for formal debt consolidation you will need a certain minimum salary, a good credit record and a solid asset base.

• Negotiate. Shop around. Get various offers and bring them to the table. Even one percent can have a major effect. If your bond is R100 000 over 20 years at 15 percent you will repay R316 029. At 14 percent you will repay R298 444, saving you R17 584!

• Switch. If you already have a loan with one bank and another offers a lower rate, then switch! You don’t have to keep your home loan at the same institution for the whole term. It’s a very good idea to periodically compare the rate you are paying with the interest rates that other lenders offer.

  To qualify for a bond switch you need to be permanently employed and have a good credit history. The new bank will re-evaluate your house, involving a cost that is normally included in the new home loan, but can be paid separately.

  You may only switch bonds after being with the original bank for at least six months and after a 90-day notice period. Keep in mind that switching your mortgage will incur various costs (e.g. bond registration). You need to do the calculations to make sure the change is worthwhile.

  Of course, this advice holds true for credit cards as well. If it’s cheaper elsewhere, switch!

• Don’t save and don’t invest. The best investment you can make is to repay debt. The ‘return’ can hardly be beaten and is tax-free.

  Many people with a mortgage also have a money market or notice account. This is a costly mistake. Instead of paying money into the account and earning, say, six percent interest you could use your mortgage as a very effective savings tool. Remember prime is currently 14.5 percent, a rate that no savings account can beat.

  Each extra cent that you put into your mortgage decreases the capital amount and therefore the interest that you pay.

  With ‘access’ bonds you can repay more than your set repayments and borrow against what you have paid. This is great if you need to borrow at short notice and also to use as a savings account. Spare cash goes into your bond meaning you pay less interest. This interest that you don’t have to pay is way more than you would have received otherwise and there are no additional costs. Say, for example, you want to put away some money towards a holiday, ‘save’ the money in your mortgage bond until you need it, rather than in a low-interest savings account.

• Pay in an extra amount into your home loan every month. Even a little extra each month can drastically shorten your loan term. For example, if you pay an extra R340 per month into a loan of R500 000 at 11 percent interest you will save a whopping R159 000 in interest and shave three years and eight months off the term.

• Make multiple payments in a month. Mortgage interest charges are calculated on your daily outstanding balance and you would therefore immediately profit from any deposits into your home loan.

  For example, on a bond of R100 000 at 11 percent over 20 years, the monthly instalment is R1 032. If you divide this into two payments of R516 made on the 15th and 30th days of each month, instead of a single payment of R1 032 on the 30th, you would save almost R2035 in interest and the loan would be repaid two months earlier.

• Maintain your payments if rates drop. Unless otherwise instructed the lender will decrease your repayment when the interest rate falls. However, if you continue with the higher payment you will pay the capital amount off faster, thereby reducing your term and the overall interest you pay. You will already be accustomed to paying the higher instalment so why not continue? Also, it won’t be such a shock when the interest rate goes back up again.

• Make lump-sum deposits. You can save a considerable amount if you deposit any additional income you receive, like your yearend bonus, into your home loan account.

• See what SA Home Loans offers. Banks have traditionally been the primary suppliers of home finance, but have recently experienced stiff competition from SA Home Loans, a lending establishment dedicated to home finance.

• Consider using a mortgage originator. Mortgage originators (sometimes called bond originators) negotiate with various financial institutions on your behalf. They often have a better bargaining platform with these institutions and could potentially get a better deal for you than you could get yourself. Mortgage originators’ service does not cost anything as they earn a commission from the bank if an application is approved. Mortgage originators, however, do not approach SA Home Loans.

• Pre-approve your home loan before you start shopping for a house. In this way you can thoroughly shop around for the best interest rate without being under pressure. You will also be in a far better position to negotiate with the seller if he or she knows that the money is available.

• Fix your rate. For this one to work you have to pick the right time to fix your interest rate. This is quite risky and, as your fixed rate will be higher than the variable rate, your timing would have to be great to ‘win’ back your money. When rates are rising fixed-rate loans look good, but keep in mind that the banks offer this option precisely because they are usually the ones who score on the deal. These loans are quite inflexible. You may not be able to make additional repayments or pay the loan out early without facing high penalty charges.

  A fixed rate suites borrowers who need to be absolutely certain what their future home loan repayments will be. If you can tolerate some uncertainty a variable rate would be the cheaper and better option.