“Riches are not only measured by money but the wisdom and knowledge that you possess.”
~Lailah Gifty Akita
Financial terms can mean the difference between success and failure in financial decisions. Even the simplest of terms need to be understood well enough to be able to accurately decide whether an action is worth your time and energy in the long run.
There are of course thousands of financial terms, and this will be an ongoing blog to bring across both the simple, and the complicated. It’s important to be completely knowledgeable about every financial decision that you make.
While the terms discussed below may seem simple, there are many people who cannot explain them when asked. It is for this reason that we have decided to explain them and allow you to become empowered through knowledge. This is the very intention of our Money Moves Channel on YouTube, and it would be great if you would visit our channel and subscribe to get financially empowering information every week.
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Financial Terms #1 – Secured Debt and Unsecured Debt
In the world of financing, there are two forms of debt:
Secured debt and unsecured debt.
Secured debt is debt which has a collateral backing attached to it. This means that there is an asset attached to the money which is borrowed to you. A home loan would be considered a secured debt, as would vehicle finance.
There is more benefit to the creditor with secured debt. This is because they are at liberty to seize the asset when the consumer defaults on their payments. Debt Rescue can assist in such matters; however, this avenue should be considered sooner rather than later.
Unsecured debt, on the other hand, is debt where there is no collateral attached to the money.
When the consumer defaults on their payments, the creditor would have only one option and that is to take legal action. Clothing, food, and other non-collateral accounts such as loans and credit cards fall under unsecured debt.
Debt Rescue assists consumers in preventing the negative consequences of legal action and seizing of assets wherever possible. If you find that you are struggling to maintain payments on either secured or unsecured debt, click here to contact a consultant now to see how we can be of service to you.
Financial Terms #2 – Interest Rate
The interest rate is defined as being an amount charged by a creditor to a consumer and is dependent on many aspects. This includes any legislation from the specific country you are accessing credit from as well as the consumers financial history and current affordability.
Each person will be charged a different interest rate. However, the interest you are charged also includes the rates charged by the Reserve Bank, which remains constant. The repo rate. The interest you will be charged is dependent on the Repo Rate. The Repo rate in South Africa is defined by the Reserve Bank. This is the rate at which the Reserve Bank lends to the commercial banks. They in turn include this percentage and charge you, the consumer, interest based on your financial position as well as your financial history – your credit score.
It is imperative that you shop around before taking on long term and short-term financial commitments. Different financial institutions charge differently, and if you are simply taking the first offer on the table you may be sitting with a larger price tag when it would have been far more affordable somewhere else.
The interest rate in South Africa has seen a double increase within the space of 4 months, leaving 2022 with a grim outlook for consumers. It is now more important than ever to look after your credit score. If you have not downloaded your free report yet, please go ahead and do so now, here. Financial Term #3 – Net Worth
To understand your net worth, you must understand assets and liabilities.
Assets are resources which belong to you, which you have complete control over, and which will become beneficial in the long run, such as property, minerals etc. Liabilities are items which you still owe on, so if you have a home and are still paying off a mortgage on the property, the mortgage would be seen as a liability.
Your net worth is the measure of your overall financial health. If you would like to work out your net worth, simply calculate assets minus liabilities. If the amount that you are left with is in the negative, then your financial health may be in trouble. If it is in the positive, then you are doing well. The higher the net worth, the better and more sought after your financial position is.
Financial Term #4 – Credit Score
Your credit score as a consumer is your financial face to the greater world. It is more important than people realise and looking after your credit score should not even be a question. The credit score in South Africa is determined by many factors including the type of credit, the length of the credit history, your payment habits throughout this time as well as your total amount of debt owed.
Your credit score depends on every financial transaction between you and financial institutions. It is also found to be very common for employers to look into the credit report of prospective employees. If you would like a free credit report, then click here.
We have covered four seemingly simple financial terms; however, these four financial terms are a make or break to a consumer. If you wish to increase your wealth and lift your position in society, it is important to really look after your credit report and ensure that the debt that you are making is benefiting you in the long term.
Financial decisions should never be on-the-fly decisions, but well thought out and carefully planned actions. Perhaps, this is true even more now than ever as we see the rise of unemployment and a forecast of troubling economic times in South Africa.
If you are struggling to continue your repayments, remember that there is a path to immediate financial relief. Contact Debt Rescue now.