The value of responsible borrowing and good debt management for young professionals

The value of responsible borrowing and good debt management for young professionals
Tracy Afonso, Nedbank Executive Private Clients

A professional qualification is a significant step towards a stable and fulfilling career. However, this investment comes at a substantial cost.

 The expenses associated with obtaining a degree or other professional qualification can run into hundreds of thousands of rands, resulting in many young professionals acquiring large student loans. As a result, one of the major challenges most young people face as they enter the workforce is finding the right balance between repaying loans and managing the high cost of living. It can be disheartening to realise that, despite the long hours and hard work you put into obtaining your qualifications, you are now burdened with substantial debt, and starting with an entry-level salary, while carrying such a mountain of debt, can be overwhelming.

Then there are additional financial factors that can further complicate your financial situation, such as the ever-increasing cost of living and the expenses involved in establishing a home and professional life. Beyond the weight of student loans, you now also have to deal with the various costs that come with leaving home and beginning your career.

At this stage of life particularly, an understanding of the importance and value of responsible borrowing is essential for effective financial management. As a young professional, you have worked hard to create the life you desire. As you acquire your first assets, it’s important to ensure that you get into the habit of borrowing responsibly and managing your debt effectively. Borrowing money is usually a requirement if you want to buy a property, car or even household appliances and furniture. However, relying on credit cards or other expensive forms of debt just to maintain an unrealistic, or unaffordable, lifestyle is never advisable.

Like many other young professionals, you may be considering deferring your debt repayments for a few years, thinking it will provide you with the necessary breathing space to set up your career and household. Or you may want to resort to borrowing more money just to service your student debt and fund your desired lifestyle. However, this approach comes with a significant drawback: interest.

While interest works in your favour when saving, it becomes a burden when you have to repay debts and loans. The interest rates associated with loans and other debts can vary greatly. If not managed correctly, these debts can place you in a financial tight spot, making it difficult to meet your repayment obligations. Ignoring the situation will only make things worse over time, so it’s important to take proactive steps to address the challenges of debt repayment.

Begin by reviewing your budget and identifying areas where adjustments can be made. Understand your spending habits and practise effective budgeting. If there is no more room to adjust your budget, consider informing your credit provider(s) about your situation and explore the possibility of a different payment plan. Develop a clear strategy to repay your debt and work diligently towards paying it off.

Consolidating your debt can also be one of the most effective steps towards overcoming it. Debt consolidation involves taking out a new loan to pay off multiple debts and combining them into a single, larger loan with more favourable repayment terms. Depending on the lender’s policy, you may be able to negotiate better interest rates and pay off your combined debt faster and more efficiently.

Another vital approach to responsible borrowing is to make sure that you make good credit decisions from the start. It’s worth building a relationship with a trusted financial services provider, such as Nedbank, which can provide you with a wide range of sound money management options and services, from home and car loans to investments and savings. Nedbank also offers holistic support, specifically designed with the needs of young professionals in mind, including expert advisory services, tailored loans and debt management solutions, and a comprehensive array of services designed to enhance your financial security and help you build the personal and professional life you desire.