BULL’S EYE ADVICE ON HOW TO BEAT THE DEBT CHALLENGE

Step 6: See your bank manager

Negotiate lower bank fees
Bank charges have been a point of contention in South Africa for some time now. In 2006, transactional-fee income represented one third of our banks’ total income: R34.5 billion. This is an astounding figure.

Whereas banks overseas – in the UK, Australia and New Zealand, for example – may offer you a savings-account facility with no monthly fees or a nominal fee of around R30 a month, in South Africa we have become used to paying hundreds of rands a month for similar services. The Competition Commission banking inquiry, which released its findings in 2008, concluded that, among other problems, bank charges were too high – an understatement if ever there was one.

One of the lessons to be learnt – or reinforced, given what we know about the subprime crisis in the US and the credit-extension problems we’ve had back home – is that we, as individuals, have not been astute enough in our dealings with our banks and in managing our accounts. We have simply let them dictate to us. It’s time to change that mind-set.

Even now that a measure of control has been introduced to fees and charges, with more competitive and better-priced fee structures becoming available, banks are by no means obliged to alter your fee rates in your favour. If you do not negotiate lower rates and a better deal for yourself, no-one else will.

At the next available opportunity, review two or three months’ worth of account statements and work out your average monthly spend on account fees, as well as your average number of transactions. If you have never kept a check on these things, you may be surprised to find that your internet-banking fee + service fee + transaction charge + admin charge + overdraft ledger adds up to several hundred rand.

Next, visit your branch manager and have him talk you through the available fee-package options. By paying a set fee for a set number of transactions, you should be able to cut your monthly spend by 60% or more. It is well worth shopping around to see which banks offer the best options for you, as the yearly savings can be significant. The following sites are very helpful and user-friendly: www.bankmonitor.co.za and www.justmoney.co.za.

Example: Your standard cheque account into which your salary is deposited and through which you probably process around 25 or 30 transactions per month – bill payments, balance enquiries, ATM withdrawals etc – might be costing you R350 or more per month if you are still on a fee-per-transaction payment structure. Depending on whom you bank with, you may be able to reduce this to below R100 if you are disciplined enough to stay within your set transaction allowance. Even if you manage to bring it down to around R150, that’s still a saving of R200 a month for just one account – which is upwards of R2,400 per year.

NB! Some points to look out for:

  • Take note of your new fee package’s allowances. It will probably offer a limited number of monthly transactions, whereafter you will pay per transaction. If you’re not careful, your monthly charges may blow out again.
  • Be wary of ATM transaction fees by limiting your monthly withdrawals. In particular, avoid Saswitch transaction fees – for using other banks’ ATMs – which can treble your cost.
  • Never withdraw money from a bank teller. Besides being rather slow and old-fashioned, it’s exorbitantly expensive.

Negotiate or seek out lower interest rates
While you can save good money just by changing the fee-payment structure on a cheque account, there are more significant savings to be made by reducing the interest rates on your credit cards, vehicle finance, bond and other loans. Prepare yourself by shopping around – see www.bankmonitor.co.za and www.justmoney.co.za – then speak to your bank about negotiating a better deal.
Moving loans can be a lot less hassle than you might imagine, and in the long run there are huge savings to be had. Your bank should be keen to help, but if it isn’t or you feel there are better deals out there, don’t be scared to take your business elsewhere.

Example 1: Many financial institutions are offering excellent deals for you to move your bonds to them, typically offering savings of up to 1.5% per year in repayment costs. That’s an annual saving of R6,500 on a 20-year R500,000 bond (assuming an original rate of 14.5% which is dropped to 13%).

Example 2: Similarly, there are also some great deals to be had when moving credit cards. Not only might you save on annual fees and interest rates (which vary by up to 8% between cards), but you may be able to transfer your current debt so that it is paid off at a preferential rate that is substantially lower than your current rate. Usually you have a year’s grace in which to do this. Assuming you transfer R50,000 worth of debt currently being charged at 26% to a card with a preferential rate of 13%, you could save R6,500 in interest payments in that time.

Another strategy is to consolidate your debt under one roof with a lower resultant interest rate, either at your current bank or another. This will save you money and allow you to pay off your debt sooner by having a greater monthly cash flow. Another benefit is that you will only have one account to handle, as opposed to several, and this account can be paid electronically on a monthly basis, saving you time and money.

Consider the following Before and After example, assuming various higher interest rates before consolidation versus a lower fixed-interest rate of 13% across the board:

Before consolidation
                                  Loan          Repayment     Interest   Monthly
                                  amount      period             rate         Payment
Home loan                 R400,000     240 months    14.5%     R5,120
Vehicle finance         R100,000     60 months      15%        R2,379
Credit card               R20,000       60 months      23%        R563
Personal loan             R30,000       60 months      16%        R730  
Total                                                                                    R8,792

After consolidation


                                  Loan           Repayment     Interest   Monthly
                                  amount      period             rate          Payment
Home loan                 R400,000     240 months    13%         R4,686
Vehicle finance         R100,000     60 months     13%         R2,275
Credit card               R20,000       60 months     13%         R455
Personal loan             R30,000       60 months     13%         R683
Total                                                                                   R8,099

Consolidation, coupled with a lower combined interest rate, has brought about a saving of nearly R700 per month, which works out to more than R8,000 per year.

You should, however, be aware of the pitfalls of consolidation, such as the costs of doing it and the period of the “new” financing term. This should be discussed with your financial advisor and the monetary aspects should be calculated. It is of no use to re-finance short-term debt over a longer period of time as this would result in a higher amount of interest being paid. Rather try to re-finance it over the remaining term of the original loan and ensure that you pay it off in time.

NB! Note: be aware of the 3-month cancellation notice you have to give your existing bank as noted by the National Credit Act.

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