Buckle down the hatches - the storm that has swept the financial markets for the past six weeks has worsened and there is now a direct penalty for individuals in higher interest rates.
And at one stage during the week as a record R10 billion shortage in the money markets (literally where the banks trade in money) nudged up short-term wholesale borrowing rates, it looked as if interest rates for individuals would be pushed up by another one percentage point.
The one percent hike in interest rates is bad news for borrowers but good news for those with money in the bank and people on fixed incomes, like pensioners, widows and orphans.
The cost of borrowing money is now very expensive. At best you are now paying R18,25 a year for every R100 you borrow in nominal terms (before taking account of inflation) and almost R13 a year for every R100 in real terms (the interest rate less the inflation rate of 6,3 percent).
If you are borrowing money on your credit card or have hire purchase (HP) accounts you could be paying as much as R30 a year for every R100 you borrow.
The most critical area for most people is the loan on your home. Although it probably accounts for most of your debt it is also probably the cheapest debt you have.
With the high cost of money you need to shop around like you would for a new television set.
Even interest rates on mortgage bonds vary. If you are borrowing R100 000 or more it is possible to get a lower rate than the generally advertised new rate of 19,25 percent.
The larger your bond, the lower your interest rate, particularly if you are creditworthy. Even if you already have a mortgage bond shop around - it might be worth your while to transfer your bond to a new institution if you can get a better deal. Just take into account the costs of transfer of the bond before you decide.
Your own institution is, however, likely to equal the interest rate you are offered elsewhere.
Now look at the rest of your debt. If you owe money at higher rates of interest on HP agreements or your credit card but have leeway to borrow on your mortgage bond, transfer the debt - replacing an overdraft can save you money.
Very few people get the prime overdraft rate from their bank - most pay two percent or more over the rate. If you do get prime rate, which at 19,5 percent is 0,25 percent more than the average mortgage bond rate, there are advantages in moving your debt.
However, watch out for penalty clauses on HP agreements or other lease agreements - it may be more expensive to bail out.
Managing your debt can substantially improve your financial position. It is important to know what interest rates you were paying and what you will now be paying. You also need to know the date the change will take place.
This time most mortgage bond-holders will not be given a month's notice as in the past. Most rates went up from Thursday. Only those people whose mortgage bonds were taken out before October 1988 are obliged to be given a month's written notice of the increase.
This is important because you will have to start paying more. The longer you leave it, the more your capital debt will build up.
In fact, if you have a new bond and have been paying the absolute minimum and do nothing about increasing your repayments, you could be owing more in a few months than you do now.
This is because nearly everything you pay on a new bond goes towards paying interest and very little to reducing the capital.
If you can't afford to increase the amount you are paying monthly, ask the institution to which you owe money if you can extend the repayment period.
If you can afford it, pay even more. The higher interest rates go the more attractive it becomes to pay off debt. An added advantage, particularly in a pure interest paying investment like a bank deposit account, is the tax saving.
Effectively you are receiving the interest rate you would have paid on your debt without paying any tax that the interest on a savings account would have attracted.
However, investments like most unit trusts have provided historical returns that still out-perform interest rates by a significant margin.
CALCULATE YOUR MONTHLY BOND REPAYMENT INCREASE
STEP 1:
Divide the outstanding capital balance on your bond by R1 000 to get what is called your capital factor.
Example: R80 000/R1 000 = 80
STEP 2:
To calculate the new interest rate payable, add one percent to your existing rate. Example: 18,25 percent + 1 percent = 19,25 percent.
STEP 3:
Multiply your capital factor by the appropriate figure in the table alongside (using the interest rate you calculated in Step 2) and the remaining life of your bond to calculate your extra monthly payment.
Example:
80 x 0.7757 (20 year bond) = R62.06.
Remaining term of bond
18,25
18,75
19,25
10 years.6413.6463.6512
15 years.7168.7220.7270
20 years.7674.7717.7757
25 years.7980.8011.8039
30 years.8152.8172.8189
Source: Standard Bank