News Column

Get Rid of the Debt

June 20, 2014

"The Bank of Namibia (BoN) has announced an increase in the repo rate by 0,25% to 5,75% on the back of an upward trend inflation. "As a result of increasing interest rates debt is becoming more expensive," says Daniel Motinga, Head: Research at FNB Namibia. "While the difference may be small at the moment, any additional interest rate increases will start to really hurt people's pockets.

Now is the perfect time to rebalance your debt portfolio by paying extra into your loans."

Motinga continued to say that for the last five years interest rates had been at an all time low, meaning that the cost of debt has been reasonably low for this period of time. "But, the interest rate rose by 0, 25%, and we have now entered an upward rate cycle, which means we could see more interest rate increases in the future. Borrowers can take steps to protect themselves from rate hikes."

"As interest rates rise, so does the cost of borrowing. Most instalments will re-price as a result of the rate hike such as car repayments, bond repayments as well as credit cards, personal loans, any furniture or items bought on higher purchase and store cards," says Motinga.

For example, with a 0,25% increase in interest rates on basic debt of a 20 year bond of N$500 000, a consumer is looking at additional payments of N$81,60 per month or nearly N$1000 a year. "The fact is that interest rates don't tend to stop at one increase even though we think this is a gradual hiking cycle. The best thing to do is to start cutting down on your debt as soon as possible, so that these and any future increases don't hit your pocket," says Motinga.

But it isn't all doom and gloom. "The good thing is that, whenever interest rates go up, interest on your savings or investments go up too, so start putting more money away," concludes Motinga.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: AllAfrica

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