Sanlam : Financial Planning in the New Year

When you start working, you may have student loans to pay off, and it's tempting to take up the offer of a credit card or to blow your first pay cheque. Before taking on debt, make sure you have a solid grasp of the concept of compound interest and a keen understanding of how changes in the interest rate and term affect your repayment obligations. Not all credit is bad, but it needs to be managed very carefully so that it works for you, not against you.

Good debt typically helps you to invest in your future earning capacity or an asset that increases in value over time - student loans and home loans are examples of good debt. Bad debt, on the other hand, is usually incurred when you invest in assets which depreciate in value - particularly those that are very expensive - or you borrow funds to purchase goods you can do without or are perishable. Consider your choices carefully, plan ahead for things you want and make use of emergency savings instead of credit when unexpected expenses crop up.