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Preparing for the plastic crunch - Tips that could save your life

by Christine Leonardi: Freelance writer, communications practitioner and GIBS Review contributor.
Forget the American sub-prime crisis. Rather be concerned about and plan for the plastic crunch in 2009.

This is according to the business editor of the UK’s Eastern Daily Press Paul Hill, commenting in a recent report on concerns about Britain's mountain of credit card debt.

Two out of three Britons have a credit card; typically a couple of cards from different providers. Collectively, they owe £55.7 billion. To put that into perspective, the taxpayer just bought half of one of Britain's biggest high street banks, Royal Bank of Scotland, for a mere £15 billion.

“Looking at figures from the British Bankers' Association published in December, consumers paid back more than they spent on their credit cards for all but 10 of the last 33 months,” says Hill. “But, the overall level of credit card debt still increased - and largely because of the relatively high rates of interest charged on plastic.”

If the 3 million Britons who are expected to lose their jobs by the end of 2009 can't keep up their repayments, the banks will have to swallow more bad debt at a time when the banking system is already tottering.

“Treat managing your money like you would any other household task. Set aside enough time for it every month,” says Hira.

“The time always comes when debts have to be paid, in full or part, whether a credit card, mortgage or personal loan. Even when people default on their debts, the cost or loss is just passed back to the lender to carry,” says Hill.

According to This is Money (www.thisismoney.co.uk) it will take more than two years to clear a debt of R33 000 on a card that attracts an interest rate of around 15% per annum, assuming a monthly repayment of R1 500 (£100) is made.

There are, however, plenty of simple ways to make significant savings on your regular spending that could clear the debt many times over in less than a year.

Many South Africans, who until recently were relatively immune to the effects of the global credit crunch, will find This is Money’s top money saving tips useful:

Change your attitude toward your mortgage
The most expensive item you are ever likely to buy is your home. If you're not in the privileged position to pay cash, make sure the loan you use to finance it is the best available. For example, if you are paying your lender's full standard variable rate (SVR) you are probably paying hundreds of rands a year more than you need to.

There are thousands of deals to choose from and while it is vital to check the small print for hidden catches, this is a relatively easy way to save a lot of money.

Remember: loyalty to your bank benefits your bank, not you. Even better, if you can afford to make overpayments on your mortgage, you'll clear your debt several years early and make massive savings.

For example, if you borrow R1.5 million (£100 000) at 6% over 25 years, you'll pay it back at R1 500 a month. The total charge for credit will be R1.4 million. But if you overpay by R1 500 a month, you'll clear the loan in less than 19 years, giving you 6 years of mortgage-free living and saving a staggering R375 000 (£93 000) in interest. 

Save: R1 000s

Clear your credit card debt
One of the golden rules of financial planning is to clear your most expensive debts first, in other words your credit cards. OK, credit cards offer a convenient way to pay for goods and services but if you can't clear the balance every month, consider a low-cost loan as an alternative. Do the sums: a credit card debt (APR 15%) of R33 000 over three years will cost R8,175 in interest. A loan at 6% will cost R3 135, which is a saving of R5 040. 

Save: R1 000s

Cut the cost of your fuel bills
As the global demand for power threatens to outstrip supply, prices are rising. But that doesn't mean you need to be ripped off. The domestic market for fuel is a competitive one and you can change supplier with a few clicks of the mouse. Your new supplier will take care of the formalities - you just pay less every month.

Save: R1 500

Consider installing a water meter
We take our tap water for granted. The companies behind the supply exist to make a profit, we pay them to supply water and have every right to expect it to flow from our taps.

But if it doesn't rain, supply runs dry and the price goes up. So you may want to consider the possibility of installing a meter. If you have a big home with few occupants you may be surprised to learn you could halve your annual bill.

Save: R1 000s

Cut your home phone bills 
If you must use your phone there are scores of cheaper alternatives from cable companies that package your telephone, television and even broadband internet access to low-cost dial-up services that give you access to cheaper calls using your existing line.

Save: R1 500

Consider a pay-as-you go mobile
Ask yourself this: is your mobile phone absolutely necessary? If the answer is yes, then ask yourself whether you really need all those minutes and texts that come as part of your package.

If you hand over R750 a month to your mobile phone company, that's R9,000 a year – or around R15,000 of your gross salary. But you can buy a pay-as-you-go phone for as little as R450 and only pay for the odd call as and when you need to.

Save: R1 000s

Make a shopping list
Food shopping forms a significant part of our monthly outgoings and the supermarket is where the bulk of the money is spent.

But, be warned, stores spend a small fortune studying ways of making us part with more of our money than we would otherwise intend to.

Have you ever wondered why your favourite song is playing in the background as you navigate the aisles? Have you even noticed the background music? Possibly not, but you will have noticed at the checkout that the bill is often more than expected.

To circumvent this, simply make a shopping list. Dig out the cookery books, plan a few meals and only buy what you need. 

Save: R150 a week/R7 800 a year

When was the last time you went to the market?
One way to beat the supermarkets - that is, to eat healthily for less - is to use your local market stall. Lower overheads should mean lower prices.

Save: R1 500+

Don't buy designer labels
Celebrities are given expensive clothes to wear. You're not. At the end of the day, and let's face it you may only wear the outfit once, can you justify paying hundreds of rands over the odds because a top designer has had his or her name sewn on the label? And can you honestly say you can tell the difference at a distance between a R9 000 designer bag and a R150 one from the market? Think about it.

Save: R10 000s

Sell your clutter on eBay
Take this quick test: You're at home. Open a cupboard. Look inside. If it's full of clothes you haven't worn, or 'good ideas a the time' you haven't used, for, let's say, three years - you don't need them. So why not sell them to someone else who does? Ebay, the online auction house, has opened individual sellers to a world of buyers. And you can flog anything for the cost of a small commission.

Tip: you may want to buy a few items first to build up your rating as a respectable eBayer before you start selling.

Income: will depend on what's in your cupboard

Use your talent to earn extra cash
Let's face it, if you're not a pop star by the time you reach your 20s you're never going to be. But you may be able to use your talent as a guitarist to teach other wannabes the rudiments of the 12-bar blues.

Income: It's not unreasonable to charge R300 an hour.

Do DIY
We're a nation of obsessive DIYers and for around R1 500 you can take a course at your local adult education college to improve the skills needed to tackle most household repairs. If the college runs plumbing courses you could soon be on track to wiping out costly call-out charges and extra insurance policies once and for all.

Save: R1 500+

Shop around for the cheapest household insurance
Unless you drive – car insurance is mandatory - you don't need insurance. But it's strongly advisable. Can you afford to foot the bill if your house burns down? Probably not. Similarly, can you afford to pay over the odds for the same policy available elsewhere because you can't be bothered to shop around? Possibly, but it's not advisable. The internet has made finding cheaper insurance easy and you can compare hundreds of policies in minutes.

Save: R1 000s

Don't automatically renew annual travel insurance
If your annual holiday insurance policy is about to expire and you don't have a holiday booked, DON'T renew the policy. You're handing your money over to cover an eventuality that won't happen. You wouldn't have car insurance if you didn't own a car. Simply restart the cover again the next time you book a trip.

Save: R750

Choose cheaper breakdown insurance
The breakdown sector is dominated by big names such as the AA. But being towed home if your car breaks down is just another form of insurance like any other and there are scores of cheaper alternatives. 

Save: Up to R1 500 a year

Are you paying too much for your life insurance?
We're living longer. As a result the cost of insuring the unthinkable is getting cheaper all the time. If you were sold a policy when you took out your mortgage you may have been under too much stress to shop around. You could be missing a trick.

Save: R1 500

Book early
Low-cost airlines have created a market in holidays for people prepared to fly to any destination provided it's cheap. You can benefit from this too. Just remember, only a few seats on each flight are sold at bargain-basement prices and once they're sold, the prices rise. So book early.

Save: R1 500

Book your own 'package' holiday online
The popularity of High Street travel agents is waning as more and more people warm to the benefits of researching and putting together their own holidays on the internet. If your holiday consists of flights, accommodation, transfers and possibly car hire, then take this test. Order a brochure from a leading holiday company and work out the price of your holiday including all the complicated supplements. Now go online and, starting with the flights, try to put the same package together.

Save: R1 500+

Learn to say 'no'
It's easy to capitulate to the demands of a screaming child in a packed Woolworths on a Saturday afternoon. But don't do it. Similarly, how often does a 'swift half' after work turn into a R600 drinking session? Saying 'no' a few times a year will do wonders for your bank account.

Save: R1 500

Beat the ticket touts
Ticket touts earn their living by getting hold of tickets that are 'otherwise unavailable'. Well, here's the news: they are available to everyone when they first go on sale. You just need to know when they go on sale. Simply sign up to for the free ticket alert newsletters from the main agents to ensure that you're first in the queue.

Save: R1 000s

Stop trying to keep up with the Joneses
Trying to keep up appearances is little more than a costly illness. Remember, you cannot judge someone by what they have because you don't know how they got it. Chances are they're in more debt than you are.

Save: R1 000s

Trade down your car
So, you bought an American sports utility vehicle (SUV) that nets 15 miles to the gallon on a whim. Obviously we're all very impressed – especially by the personalised number plate. But can you honestly justify the ongoing expense? If not, get rid of it. Then visit a car supermarket, where you can choose from thousands of cars at knock-down prices. If you're a true money saver, consider an ex-rental model which you can pick up for a fraction of the cost of a new one.

Save: R10 000s

Ask yourself: do I really need this?
Imagine the scenario. It's lunchtime and you've got an hour to kill. You find yourself in a department store and there's a sale on. You pick up a beautifully packaged selection of barbecue tools and associated garden paraphernalia. And it's half price. Now, stop! Ask yourself: Do I really need this? Exactly. Now, put it down and walk away.

Save: R1 500

Walk/cycle to the station/work
It maybe a bit of hippie notion to many people but it's free. 

Save: R1 500

Get off the station before your usual stop and walk
We may be creatures of habit but isn't it worth tinkering with the routine if it's costing more than R750 a month in unnecessary fares?

Save: R1 500

Cut down your drinking
A few beers after work a few nights a week is a financially debilitating state of affairs. Set limits and stick to them.

Save: R1 000s

Pack up smoking
Never mind the health implications, the guilt and the smell, your 20-a-day habit is costing you nearly R10 000 a year. Pack it in. 

Save: Nearly R10 000

Cancel your gym membership
If you pay your R600 a month by direct debit and you use the gym three times a week, great. If not, cancel your membership immediately. You'll soon save enough to buy your own bike and, if you're so inclined, a rowing machine. Consider running home from work three times a week. It's free. 

Save: R1 000s

Use your library
The local library is a mecca for the money saver. You'll never need to buy another cookbook, guidebook or lifestyle manual again and if you can bear to wait a few weeks in the queue for the latest blockbuster, you never need to buy books again. CDs and videos are great value too.

Save: R1 500

The three-for-two trick
Now, there's a lot to be said for buy-one-get-one-free deals, especially if they pass the 'Do I really need this?' test. Then there's three-for-twos; a particularly cynical way of stores to entice shoppers to buy an extra item they would not otherwise buy. The 'offer' is always priced into the deal so do your sums and shop around. 

Saving: It's a principle at stake here

Buy clothes and presents in the sales
So you need a new suit and the one you like comes in at a cool R4 500. Wait! The chances are that you can pick it up in the sale – and there's always a sale just around the corner – for R2 250. The same applies for birthday and Christmas presents. Buy in bulk in the sales and you not only save money, but you enjoy stress-free pre-Christmases and no last-minute birthday worries.

Save: R1 500

The Christmas lottery
Instead of trying to buy a present for every relative in your family, consider getting together beforehand and picking one name from the hat. You then buy one thoughtful gift for that one person rather than attempting to please everyone at considerable cost. Everyone gets a present, everyone saves money. 

Save: R1 500

The National Lottery – it won't be you
The odds of winning the Lotto jackpot are stacked 14m to 1 against each ticket. Some highly organised syndicates buy 14,000 tickets a week, which reduces the odds to 1,000 to 1 - but that's no guarantee of a win. For the rest of us, the difference to the odds between buying, say, 10 tickets and one is so insignificant that you should limit yourself to the one and save the extra money.

Save: R1 500

How saving R750 a month now can save you R1800 next year
Do you pay your insurance premiums by monthly instalments? If you do, then consider this: you are probably being charged a premium of between 15% and 20% for the privilege. In other words, if your home and car insurance bill for the year is R9 000, you're paying up to R1,800 a year in interest by paying monthly. If you are in a position this year to save up for next year's premiums in advance, you can save money by paying the whole lot in one go.

Save: R1 500+

Bin the ready meals
If TV chefs such as Ainsley Harriott can knock up a meal from a bag of random groceries including an aubergine and a packet of sultanas – so can you. Ready meals may be convenient, but preparing your own food saves money. A visit to your library will reveal scores of books dedicated to cooking proper meals in minutes.

Saving: R1 500+

Take up a money-saving hobby
Hobbies not only open your mind to new experiences but they also take up your time – important if you would otherwise spend it in the pub drinking away your hard-earned money. If a painting takes 20 hours to complete, and you normally get through a pint an hour. That's a saving of a least 40 quid a picture. Think about it. Get painting. Go fishing.

Save: R1 500+

Avoid the payment protection racket
Banks and other lenders are selling expensive insurance policies to cover loan repayments to people who don't need it. Don't be a victim of the hard-sell.

Save: R1 500

Avoid extended warranties
Electrical goods are more reliable than ever. If your new radio won't last three years perhaps it's not worth buying in the first place. Think about it: how many times has your fridge broken down in the last five years? And do you really need the hassle of claiming for repairs to a R225 toaster?

Save: R1 500

Shop online
The internet is gradually taking over. Online grocery shopping is getting better all the time and there are plenty of comparison websites to help find the best prices for bigger items. Give it a try, unless of course you like fighting your way through supermarket crowds.

Save: Your sanity

The Citizen's Advice Bureau is your friend
If your debts are out of control please seek help immediately from your local CAB (credit advisory bureau) – their advisers can help you work out a sensible strategy to get you back on your feet.

Save: It could save your life

Useful resources:
Gordon Institute of Business Science
Making an impact to significantly improve the competitive performance of individuals and organisation through business education to build our national competitiveness. GIBS is a leading business school in the heart of Sandton’s business hub, offering a wide range of executive and academic programmes.
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