Cash Club: How I use debt

Anyone that knows me knows I don’t like being in debt. Thanks to the Fat Wallet I cringe every time I have to take on debt. The problem is not earning a lot makes it very difficult no to take some debt.

The only debt I have at any given moment apart for my cellphone contract is my credit card. Credit cards can be a terrible thing to have if you lack financial discipline, because it almost doesn’t feel like you’re taking on debt when you use the card. I honestly don’t know why it feels this way. Maybe it’s because it looks very similar to the debit card.

I use my credit card to bridge the gap between my emergency fund and the emergency in the immediate. I must admit I have been a bit ill-disciplined with it at times. I would finish money during the month and rely on my credit card to fill in the gap. However, I always maintained a level of discipline within my ill-discipline. I never used more than I put away for an emergency. That way, in a worst-case scenario, I don’t make my emergency fund contribution at the end of the month but pay off the credit card. I never make minimum repayment to my credit—I always pay between 60% and 100%.

I usually put away R1,000 towards my emergency fund. When I use my credit card, I try not to spend more than R1,000. I do use my credit card for eBucks collection, but for this purpose I preload the credit card to have a positive balance. I use the credit card when buying groceries, petrol, toiletries etc. I’m not necessarily taking debt, rather using a debt instrument to gain more points.

Recently I moved to a new place with my new family. Anyone who has moved to a new house will know moving is not a cheap exercise. This happened a few months after my wife and I got into a car accident (no worries, we were both fine), which exhausted my emergency fund. I found myself having to break my rule of not using more debt than I set aside for an emergency. To remedy this, the plan is to do 100% of my emergency fund contribution to repay my debt. I’ll use the 2020 savings challenge to rebuild my emergency fund. In a worst-case scenario, I have to move back home, so the deposit from the new place will also help out in that.

The most important part of my debt repayment plan is NOT taking on new debt.

Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.