On the 16th January 2020 the Reserve Bank’s Monetary Policy Committee (MPC) went ahead with a repo rate cut of 25 basis points. The South African repo rate therefore dropped from 6.5% down to 6.25%.

What does this mean for consumers?

The repo rate affects mortgage prices in terms of interest rates charged. A drop in the repo rate means that prime linked interest rates become cheaper for the consumer.

As an example, if your home loan interest rate is prime linked and yesterday it was sitting at 11%, the adjustment today would see it drop to 10.75%. A small change in interest rate can have a large affect over the long term and with higher loan amounts.

The rate cut comes at a good time

With a shaky economic outlook and low consumer and investor confidence, South Africans could do with a bit of relief at the moment. Consumers are actively looking for ways to save a few rands and this may provide a bit of breathing room to those positively affected.

Current speculation of downgrades by rating agencies and low to non-existent GDP growth put the consumer in a vulnerable position. Many consumers have resorted to using unsecured debts to make it through the festive period.

Many still find themselves struggling

Cape Town based debt management firm, Vantage Debt Management, has seen a record number of inquiries since the start of the new year. The festive season and end of the year come with high expectations and various financial pressures.

Consumers flock to malls and shops to buy presents and food or splash out on weekends away and expensive holidays. This abnormal spending load causes many to run out of money long before their next pay date.

Many are stuck in a never-ending debt cycle

When borrowing from credit providers becomes a habit each month consumers may find themselves stuck in a debt cycle. A debt cycle is when you run out of your salary and are forced to make use of credit cards, personal loans or payday loans every month.

To exit the debt cycle you need to budget properly so that credit is not needed anymore. If you are unable to survive without relying on credit you may be over-indebted. This is when your debt repayments and living expenses are more than your salary.

If you find yourselves in an over-indebted position it is best to speak to a registered debt counsellor. Through debt counselling, a debt counsellor can reduce your installments and interest rates by formally negotiating with your creditors on your behalf.