A debt story from Muthu

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A real story from a reader – unedited

Mine started late 2014 when I just got a permanent job after a successful graduate programme. I decided to buy a car with my first salary, blessing right? Wrong! I bought the car online for R179K plus on road, service, maintenance, wear and tear ntoni ntioni which jumped the principal to R190K and all I had to do was go to the dealership and sign the papers, awesome! I’m a techie so I was amused.

Fast forward a year later I had learned that the car had a balloon payment and I hate those, so I decided to sell it but esh shortfall, so I borrowed R30K from the bank plus I was going into a business venture and moving in with my wife (my gf then), so I borrowed even more to cover all this, total R57K.

Esh business fell through and had to liquidate, was able to pay back most that I owed. I jumped into another one and borrowed R60K; it fell through and I liquidated again and got left with a shortfall due to interests. My credit score took a beating so I went to a bank and took a credit card for R10K to rebuild it, went well until and I got promoted at work and all looked to be coming into order, until another business venture came along and I went and borrowed R260K and bought a car for the business and took it with no balloon of course hoping the business will pay for itself, but esh fell through. Credit card maxed out also.

Then came late 2017, had to get married so I borrowed R70K for everything and also paid off my other shortfalls and credit card. It didn’t make much difference to what’s left month end as inflation kicked in hard and the car is 1.8l esh iyaphuza.

I fought long and hard for a salary jump, got it then also got a job offer and took it, wow right? Ok I cashed out my pension and paid a lot of debt back and now was left with the car and one loan and some good excess cash from my salary. Plan was to now use the excess to kill the loan in about 6/7 months then move on to the car… but life happened again, my wife lost her job, we just had a baby and boom! Just like that all that excess cash gone!

Fast forward to today I am switching jobs yet again and have a side hustle that helps cover things every month, but this time I’m not cashing out the pension. After reading your blogs and books and a lot of content on money management, even got a financial coach, I am now using the snowball to pay off my and my wife’s debts and going to use the salary difference from the new job to finish it fast as I setting my eyes into a house. At least my credit score is now above average and I’m not drowning. I can see the light and I want to thank you for the wisdom from your tweets and the blog.

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Some lessons learnt – thoughts from Editor

It’s easy to read other peoples stories such as this one or Tumi’s Debt Story and think “oh goodness, they were silly”. But instead of having a judgmental tone we should be thankful that people are brave enough share with us so that we can learn from their mistakes.

Buying a car

As you see, Muthu bought a car via an online site and either didn’t read all the fine printer or didn’t fully understand things. I can relate! You’re excited about the car, emotional and just ready to get the keys. The contracts and paper-work can be complex and sales-people often skim through the contract and assume that you know what it all means.

If in doubt, ask questions. Lots of questions. Read the contract and find out what interest rate you’re paying, how many years is the finance for. Is there a balloon payment (and what does that mean). Ask about warranties, short-fall insurance, etc.

If it works out to be too expensive then rather walk away from the deal and find something that suites your pocket and budget better.

It’s not easy to buy a car for cash but many people do. So if you are able to wait and save up, it would a tremendous difference! You probably won’t be able to afford the car you want, but your future self will be very happy with your decision!

Starting a business

Muthu took out several loans to start various businesses which unfortunately fell through. ┬áPersonally I wouldn’t take out a loan for a business venture without some serious (and I mean serious) research about the potential business.

Starting and running a business is hard, people let you down and things don’t always run to plan (in fact they seldom do). So really be careful about taking out loans for potential business ventures.

The guys at Do Better Business offer some great training and services and could really assist. This isn’t an advert for them, so if you tell them where you heard about them it would be nice.

Cashing in ones provident fund

In one sense cashing in your provident fund is stealing from your future self. But in another sense, using it to pay off debt might not be the worst thing. It’s a tricky (and emotional) decision but generally speaking one should rather preserve ones investment as the compounding interest is what you’re after!

Have a look at this post on the implications of cashing in your provident fund.

The way forward

In the end though Muthu has learnt from his mistakes, read books and even got a financial coach! Now that is awesome! Being able to reflect on past mistakes and then make a plan to fix things is the way to go!

Well done – looking forward to receiving a follow up on this!

Some more posts to look at:

Help! Where's my money gone?

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