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By Marise Smit*
Household debt in South Africa decreased to 35.40% of GDP in the second quarter of 2021 from 38.20% of GDP in the first quarter of 2021, according to the Bank for International Settlements. Other good news from a report by Momentum Investments shows that the local savings rate increased by nearly 22%, from less than 15% of GDP in 2019 to more than 18% in June 2021.
This may indicate that South Africans are reducing their debt burden and are more committed to saving or investing. Yet, another report shows that many households use almost 75% of their monthly income to pay off debt. So, how to choose between settling debt first or saving and investing?
Only focusing on settling debt first would be a mistake, but not all debt is equal. It is always important to reduce high interest-bearing debt first. According to the National Credit Regulator, the maximum interest rate on credit cards is 20.5% and the maximum interest rate on personal loans is 27.5%. It would be unlikely to achieve these high returns in an investment over the course of a year without taking on irrational high levels of risk, which means that your cashflow would be better served by reducing and avoiding this high interest-bearing debt.
Interest rate charges are typically lower for long term debt, e.g., a bond for a property. Although you do save in total interest paid over the full period by increasing your monthly repayments, you may be rewarded more by rather investing these extra funds if you expect returns to be greater than the interest being charged on your bond.
The value of settling debt faster:
Property purchase
| Property purchase price | Term | Interest rate | Deposit |
| R3 000 000 | 20 years | 6.95% | R300 000 |
| Monthly repayment required | Increased actual payment per month | Term reduced to | Interest saved |
| R20 852 | R25 000 | 14.17 years | R752 655 |
Source: Ooba Calculators
Thus, you have saved having to pay R752 655 in interest, and now you have the full R25 000 per month available for investment.
The (illustrative) value of now investing the R25 000 per month for the remaining 5.83 years of the original bond term, gives you an investment value of R1 881 787* at the end of the period. This is now discretionary funds available for actual use.
* Assumptions: 9% return per year, 0% annual increase in contributions
If you rather decide to keep your monthly bond repayments to the required amount for the 20-year term, and invest the extra funds you have available the (illustrative) value of regular investing/saving over 20 years* would be:
| Monthly contribution | Term | Total at end of the period |
| R5 000 | 20 years | R3 217 280 |
* Assumptions: 9% return per year, 0% annual increase in contributions
That is, at the end of the 20 years your primary property is now paid off and you have R3.2 million available in discretionary funds.
This rationale assumes that the return on the invested amount can be greater than the guaranteed return you will get to pay off your mortgage. But to earn inflation-neutralising returns in an investment, risk must be taken, whereas if the interest rate is higher than inflation (as far as I know it has always been the case in South Africa) you will always beat inflation by decreasing your mortgage. If you have a mortgage bond at prime, by paying extra, you earn a 7.50% risk-free, tax-free, fee-free, inflation-beating, and liquid return. In the following table the properties of the two options are compared:
Also remember, if you only focus on paying off debt first and no money is paid into savings or investment accounts, the downside is that there will be no other option but using credit cards or personal loans to fall back on in case of a financial emergency. Life always presents unexpected expenses, having an emergency fund is an important component of an overall financial plan.
Beyond saving for emergencies, investing for longer-term goals absolutely must run concurrently with settling high interest-bearing debt.
All investment issues – whether paying debt or investing and saving – present different risks and benefits and a range of assumptions will have an impact on the outcome. It is highly advisable to consult an accredited, qualified, experienced advisor to navigate the investment landscape suited to each investor’s personal circumstances and financial goals.
Megan joined the Brenthurst Wealth team in March 2026 as an Administrative and Fiduciary Services Assistant at our Val de Vie Office in the Western Cape. Prior to joining Brenthurst, Megan gained three years of experience in the retail sector, where she developed management and client service skills.
I obtained my National Diploma in Financial Information Systems from the Cape Peninsula University of Technology in 1999 and have worked in the wealth management industry since January 2000. Over the years, I have gained extensive experience in various roles, including Portfolio Manager Assistant, Planner Assistant, and Paraplanner.
Esmarelda Isaacs-Andreas joined the Brenthurst Wealth Stellenbosch office in October 2025, taking on the dual role of Receptionist and Fiduciary Administrator.
I obtained my National Diploma in Financial Information Systems from the Cape Peninsula University of Technology in 1999 and have worked in the wealth management industry since January 2000. Over the years, I have gained extensive experience in various roles, including Portfolio Manager Assistant, Planner Assistant, and Paraplanner.
Ashley joined Brenthurst Wealth in January 2025 as Office Administrative Assistant and Receptionist for the Stellenbosch Office.
René Heystek joined Brenthurst Wealth in November 2023, as receptionist and administrative assistant in the newly established George/Garden Route office.
Michelle Heystek has built a career in the financial services over the last two decades, after obtaining her B.Com degree in Financial Management in 2005. Once she joined Brenthurst in 2006, she continued her academic journey, obtaining her Certificate in Wealth Management from INSETA in 2007, followed by a Postgraduate Diploma in Financial Planning from the University of the Free State. In 2008, she earned the Certified Financial Planner (CFP®) designation.
Anelle joined Brenthurst Wealth as a Receptionist and Administrative Assistant to Brian Butchart in the Cape Town office in December 2023. She has a wealth of knowledge from working as a liaison between Financial Advisers and clients at TMA and Absa Investment Management Services (Aims) since 1998. She obtained her B. com degree from the University of Port Elizabeth in 1997.
ADMITTED ATTORNEY | FINANCIAL PLANNER & HEAD OF BRENTHURST FOURWAYS
Sanet was appointed in April 2020, joining our Cape Town team as an Executive Administration Assistant to Renee Eagar. She has been in the financial services industry since 1990. Her previous experience includes positions at Sanlam, BJM and ABSA. She spent her last 12 years working at Alexander Forbes Private Client Wealth as a Senior Wealth Management Assistant. She has received numerous accolades over the years which include but not limited to, Alexander Forbes Client Service Excellence – Silver award in 2014,2015 and 2017. Sanet has also obtained her Certificate in Wealth Management (NQF 5) in 2012 and achieved “Best Student of the Year” from Moonstone.
Maria Smit is a Certified Financial Planner® with over 10 years of experience in the financial planning industry.
