In less than a year, South African banks have dropped their prime lending rate from 15.5% to 10.5%. Under normal circumstances, one could expect some exuberance among consumers, but not this time round. Business confidence is low and consumers have witnessed retrenchments, property and equity markets losing much of the value that they’ve built up over the past years, and credit becoming scarce almost overnight.

Businesses would love you to channel the extra money left in your pocket after the bond rate cuts towards their cash registers, but should you not rather channel it towards your own bond repayments? Conventional wisdom screams ‘yes’ to the latter. And if you use our Killing your bond calculator, you may be pleasantly surprised at how big a difference even an extra R1 000 per month could make to your remaining bond term. If, for example, you still owe R500 000 on your bond and need to pay the bank R5 400 every month, depositing an extra R1 000 with every payment should decrease your repayment term by six years.

But settling home loan debt first is not necessarily the right answer for everyone. Running into cash flow problems is the cause of many foolish financial decisions, like selling fixed assets at the worst time in the market or applying for personal loans at much higher interest rates than the average home loan rate. Therefore first set up your own emergency fund – a high interest earning money market account containing about three times your monthly cost of living – for those times when the going may get tough. Owners of business start-ups or businesses still struggling with their cash flow, may want to build up an even larger cash buffer.

There are also ways of spending your extra money that could provide you with a much higher return than the interest on your bond. Enrolling for a course that increases your annual earning potential is one example of such a high-return investment. It seems like the average MBA graduate, for example, can expect his or her tuition fees back in the first year after studying – in the form of a much higher salary.

But these higher-yield investments seldom guarantee their returns, while you can be pretty certain that putting extra money into your bond will decrease your repayment term and will have the same effect on your pocket as earning interest at your bond rate. Without having to pay tax on it.