Before your tax refund even lands in your account, you should already have decided what to do with it.
If you have planned to use it to reduce or pay off your debts, Tonia Pavlou, deputy chief financial officer at RCS, says you have made a wise decision.
This is one of the most effective ways to use this money.
You can use the money you receive from the tax man to pay your mortgage, a business or personal loan, or a store or credit card.
A major advantage of making a payment towards your debt over and above your monthly instalment is that, doing so may reduce the amount you have to pay on a monthly basis – which will free up more cash to use month-to-month.
Another advantage is that, once you get ahead on your debt repayments, your credit score will increase, your credit utilisation ratio will decrease, and the amount of interest that you have to pay will reduce.
While your tax refund can be used to pay your debts, it may not get rid of it completely. However, you can take other steps to get a handle on your debt.
Alex Ollewagen, client solutions actuary at Metropolitan, offers three ways you can manage your debt.
1. Budget
The most important component of money management is drawing up a budget with all your income and expenses. It is also important to include space in your budget for savings and debt repayments. You can have a weekly or monthly diary.
There are online tools like calculators and apps available to kick-start your budget planning.
2. Know your debt
Along with a budget, it is essential to have a view of your debt. You can do this by listing all outstanding payments on credit cards, personal loans, and other bills you owe.
Ollewagen says you will “realise the importance of paying off credit cards or personal loans sooner by paying more than the minimum payment each month, and saving on interest charges in the long run".
3. Get advice
The final element of financial wellness and enhanced debt management is having the right financial adviser to be your partner on your journey to financial freedom.
Speak to an accredited financial adviser to help you with money matters and managing your debt.
“Managing your debt better today is crucial to create money for saving, which is an important step on your journey to financial wellness,” Ollewagen says.
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