Use drop in petrol price to cut debt, Reduce DebtWhile motorists enjoy a sixth consecutive petrol price drop since August, they have been warned not to spend their savings but use the money to reduce debt.
Last year this time, consumers were reeling with the news of a R2.20-a-litre increase to the petrol price, which pushed it up to R13.60 a litre.
Motorists can breathe a temporary sigh of relief with the Department of Energy’s announcement that petrol would decrease by 93 cents a litre today.
The decrease means the price of 95 octane will cost R10.31 a litre, which, according to economist Kevin Lings, is the lowest petrol price since September 2011.
“The latest reduction in the fuel price is due to the lower international oil price. In fact, on its own, the oil price would have resulted in the petrol price falling by 96c a litre in February 2015,” said Lings.
With a 30 percent dip in the petrol cost since last year, a South African motorist who paid R2 176 to put 160 litres of petrol in a car last year this time will now pay R1 649.60.
But DebtBusters chief operations officer Benay Sager has advised consumers to be cautious despite having extra disposable income. “The cost of electricity is scheduled to rise by almost 13 percent in the middle of the year, which will dent the oil price benefit.”
Financial adviser Paul Roelofse echoed the point, saying: “If you divert the savings into your high-interest debts, you squeeze out even more savings because you earn the same rate of interest of the debt.
“Judging by the global activity, oil sellers in the Middle East are reducing oil prices to get a bigger market share. The current prices are temporary and oil prices could increase to $60 a barrel by the end of the year. You might be saving a few hundred rands a month, but consumers should also remember that retailers do not easily bring down prices when the price of petrol decreases because they want to make a profit,” he said.
Lings said the current benefit of lower petrol prices could be partially offset by an increase in taxes announced during this month’s national Budget speech.
“In addition, the cost of electricity is scheduled to rise by almost 13 percent in the middle of the year, which will also dent the oil price benefit.”
But while things are looking good for consumers’ disposable income, said financial adviser Paul Roelofse, the extra money should be ploughed into reducing debt.
“If you divert the savings into your high-interest debts, you squeeze out even more savings because you earn the same rate of interest of the debt.
“So, if your credit card balance is costing you 22 percent per annum, then you effectively save this on interest over a year. Where else can you currently get a 22 percent guaranteed return on an investment?” he said.
Article credit: http://www.iol.co.za/capetimes/use-drop-in-petrol-price-to-cut-debt-1.1813037#.VNHs98mS-M8