Octogen director and debt counsellor, Paul Slot, has some tips on how to keep up with repayments

Know your good debt from your bad

Not all debt is bad. Good debt means you are able to borrow money and repay it on time.

"This way you are able to build up a good credit record which enables you to borrow in the future," says Slot.

"On the other hand, bad debt means you take out a loan, but are unable to repay on time and you don't have enough money to live on."

He says if your credit record shows that you did not repay on time it will be difficult to borrow in the future.

Shop around

Ask for a quote before you take on any debt. You have a right to this in terms of the National Credit Act (NCA).

Under the Act, you are not allowed to be charged more than the NCA interest rate limit on your borrowings each year. The rate linked to the type of debt. For instance, on a home loan you cannot be charged more than 20.4% at present.

Also, you can use an existing policy if the credit provider insists you take out credit life insurance.

"You are not obliged to make use of that credit providers' credit life insurance," says Slot.

Be honest

Often consumers tell their bankers what they think they want to hear to get their loan approved. But doing a proper budget and ensuring that you can afford the repayment terms is important if you're going to service the debt over the longer term.

Slot says you should not be spending more than 35% of your after-tax pay on monthly debt repayments.

Reduce interest repayments

If you can save a bit before taking out a loan and use this as a deposit, you can greatly reduce the amount of interest that you pay on your borrowings.

"Over time this can work out to be a significant amount," says Slot.

Also avoid using the budget facility on your credit card as this simply extends the period over which you repay the loan - with the result that you end up paying more in interest.

Be proactive

If you have difficulty paying back the amount you've borrowed every month it should serve as a warning of financial difficulties.

If you fail to pay back three months in a row, the lender may be able to take legal action against you - and you could be blacklisted.

Talking to your bank, a retailer or car dealer as soon as you think you may not be able to repay them means you may be able to renegotiate the terms of the loan until you can find a way to settle your debt.

You also have the right to make use of a registered debt counsellor when you are over-indebted.

Be punctual

If you are making payments on debt or accounts, pay on time. If you don't, this information is reported on your credit profile. When you have difficulties with your repayments it is not good to stop payments altogether.

"Pay what you can afford - don't stop with repayments," says Slot.

This will indicate to your credit provider that you are attempting to repay the loan in good faith.

Understand the loan's terms

When you are in trouble with your house or car repayments, your bank will encourage you to voluntarily hand back the assets.

"It is important to understand this before you sign any document," says Slot. Banks make use of Section 127 of the NCA, which states that you hand back the assets and authorise the bank to sell these on your behalf, he adds.

"But what they often fail to tell you is that the bank has a right to collect the difference from you irrespective of what they sold the assets for," he says.

"So you could end up still paying off your debt for many years to come with nothing to show for it."

The alternative to handing back assets voluntarily is sell the assets yourself or to apply for debt counselling. This will ensure that repayments are rescheduled in line with your budget.

Protect your assets

If you buy a vehicle on credit, you must keep it insured.

"If you don't, the bank has a right to remove the vehicle until you provider proof of payment," says Slot.

"It is also good to shop around for insurance in order to get cheaper cover if possible." Make sure your home insurance is also up to date.

Save for a rainy day

Create an emergency fund and plan for major expenses such as a major service for your car, replacing tyres or a school tour.