19 December 2008 WHAT TO DO WITH EXTRA CASH Some relief, for now By Thebe Mabanga

The recent economic downturn has had an upside for consumers. Petrol and food prices have come down over the past few months, and there was early Christmas cheer when interest rates were cut by half a percentage point. This suggests that hard-pressed consumers should use the unexpected extra cash to kill off short-term debt. But the timing of the relief - during the festive period - and the nature of some of this debt - notably overdrafts - means that directing the money saved to debt may prove difficult. T-Sec economist Mike Schussler estimates that the drop in petrol price from August, which culminated in a R1,61/ decrease in December, has put R490 back into the pockets of a consumer who uses 143 of petrol a month. A 35% drop in global food prices is a source of further relief. Figures from Schussler's office show that the price of yellow maize climbed 10,6% in the first quarter, but rose by a modest 5,7% year on year in July. The increase in the price of beef has dropped from 15% in the first quarter to about 4% in July. And the December interest rate cut has brought a saving of about R688/month for a family with two 20-year bonds totalling R1,5m and two cars with a total value of R500 000. If rates drop another 50 basis points in February, this saving will increase to R1 371/month, according to FNB. But a nalysts warn that there are two reasons why diverting the savings to debt may prove difficult. The first is that the extra cash is likely to be wiped out by higher spending associated with the Christmas shopping period. Also, after the festive party dies down, the money is likely to be eaten up by general price increases that come in January. Financial planners describe overdraft debt as most difficult to overcome. This is because of the ease with which one can slip deep into overdraft as it forms part of monthly spending. The best way to remove debt is to rank it from smallest to largest, and then to eliminate it in that order. For the overdraft, once you have established the amount you have freed by paying off smaller debt, say R500, you can ask the bank to automatically reduce the overdraft by that amount every month. SA's new credit regulation regime encourage consumers who foresee difficulty in meeting debt repayments to communicate with creditors in writing well in advance, not when the payments are due. "Consumers can expect relief from both food and fuel prices. But this time of the year [festive season] the extra cash is not easy to see because of extra cost pressures."