Step 7: Make the big calls: your car and your house

Having developed a better sense of your financial situation, and having negotiated better payment terms with your relevant creditors, you may feel you are still way behind the game. Two options to remove large chunks of debt are to downgrade your car or downgrade your house. Neither option is to be taken lightly, but the former makes a lot of sense and is something more South Africans should be considering. Do what you can to avoid selling your house unless it is wholly inappropriate for your family’s needs or there is no other option.

Downgrading your car
South Africans are particularly status-conscious when it comes to the cars they drive, as has been evident by the enormous sales in recent years of bottom-of-the-range luxury vehicles, such as 3 Series BMWs and C-Class Mercedes-Benzes. Buying a luxury marque has almost become a rite of passage for those of us who have “made it” – but our desire for moveable status symbols has started hitting us where it hurts. There has been a massive increase in car repossessions in the last year; by the end of 2008, up to 6,000 cars a month were being repossessed in South Africa.

Now is not really the time to sell your car, but if you are downgrading – rather than simply selling – you are at least likely to get an excellent deal on the car you replace it with, because booming new car sales in recent years have created a huge second-hand market. More importantly, though, you will save substantial amounts in monthly payments, freeing up additional money to service your other loans.

The best bet might be to organise a trade-in with the dealer you bought your current car from, but that is not always the case. Whatever you do, do your homework.

Buying a good used car. Take note of the following buying tips:

Check out the AA Car Annual, other car-buyers’ guides and classified ads to get an idea of what you can get in your price range, taking into account model and mileage.
Take someone knowledgeable with you when you see a car.
Always look at the car in daytime.
A clean, tidy car is a reasonable indicator that it has been looked after.
Take it for a test drive and listen for any strange rumbling or knocking noises.
Try to ascertain if the car has been in an accident.
Check the car’s paperwork and service record.
If you think you have the right car, pay for a mechanical check-up with the AA. It is money well spent.

AA Autobay offers an excellent online platform to unite buyers and sellers in a safe, hassle-free environment. All cars on this platform have been subjected to an AA multi-point check, including a roadworthy test. See www.aaautobay.co.za.

NB! Whatever you do, keep your car insurance. Bad luck often seems to run against you in tough times and the last thing you need is for your car to be stolen or written off, with you paying for something you no longer possess. Nothing stops you, however, from shopping around for better rates (see p49).

Downgrading your house
This is a big call because selling a house can be such a long and complicated process, with all sorts of hidden expenses. Also, as with car prices, property prices are down.

If you are forced to sell your house quickly, you may have to accept a disappointingly low offer. The upside, however, is that it is a good time to buy. If possible, look to buy a more affordable house relatively soon rather than rent.

Selling your house. If you have been forced to sell your home, follow these steps:

Find a reputable estate agent. You can confirm an agent’s certification by contacting the Estate Agency Affairs Board: 011-731-5600, www.eaab.org.za.
The guideline for a fair agent’s commission is between 5.5% and 7.5%. Try to negotiate a lower rate.
By arranging a private sale you can save on these substantial commission fees – up to R75,000 on a million-rand sale – but remember that this is hard work.
If you’re considering a sole mandate – employing only one agent to sell your house – demand a written offer stating exactly what the agent will do in return: how many show houses, how many adverts, and so on.
Choose an agent with a healthy internet presence; more and more prospective buyers are searching for properties online.
If you want to sell quickly, you need to have at least two show houses a month.
Ensure the house is at its best. A good spring-clean adds surprising value to the house and increases the likelihood of a sale. Ensure that there aren’t any major and obvious repairs required. Always ask your agent’s opinion, however, before you go to any unnecessary expense.
Include a clause in any sale agreement protecting you in the event of the buyer not being able to come up with the necessary financing within a certain time – usually 72 hours – allowing you to source another one.

In a worst-case scenario, you may want to auction-sell your home in order to make a quick sale – but beware the pitfalls. There are reputable auctioneers around and turnaround time can be as little as a month, but you have no guarantee that the selling price is going to cover the outstanding amount that you still owe the bank.

Be aware of cancellation fees that your bank might charge you. Do your sums first and then make a decision. You do not want to be in a position where you still owe the bank money but have no roof over your head.