It takes commitment to remain focused. Remember that the main goal at the end of the day is to eliminate all of your debt.
Do you feel like you are throwing your money into the bottomless pit of debt? Trying to find a practical solution to your existing debt problem is often a challenging task
Start by taking action!
Firstly, re-evaluate your current spending habits and develop a reliable strategy to provide you with the motivation you require to reach your goal to becoming “debt-free”!
1. Put together a list of all your debtors
It is important to compile a list of all your debtors. One of the highest causes of personal debt in most countries (besides mortgages) is credit card debt. Therefore ensure, right from the start, that you have gathered information covering all areas of your debt problems.
2. Commit yourself!
If you are committed and diligent, and have a well-thought out budgeting strategy from the word go, you are likely to persevere long-term and adhere to your monthly limitations.
3. Payment Strategy Options
There are various payment strategy options to choose from. You can either opt to pay-off debts which attract the highest interest rate first, whilst continuing to make minimum payments on your remaining debts. Although this may appear to be the least attractive option, it will save you in the long-run by eliminating avoidable interest payments. Or alternatively, pay off the lowest debts first and work your way up to focusing on your largest debt.
Although it may feel as though you aren’t making headway, once you have eliminated your highest debt, you will have eliminated an enormous amount of pressure on yourself and the rest will seem easy.
Do not reduce the maximum payments you are currently making, continue contributing as much as your budget allows each month. Your island holiday is that much closer with every large contribution you make … Stick it out!
Discuss the various payment options with your financial planner to confirm which option is best suited to you. (Contact an advisor).
4. Never borrow more than you earn!
We are taught that a certain amount of debt will benefit us later in life. The thought is that it will benefit us when requesting a loan for a property or vehicle IF we have a good credit rating. This is all very well yet how much debt we end up finding ourselves in, is where the problem lies.
It is therefore imperative that you pay your credit card balance on time and in-full each month. You will attract little or no interest by doing so. Check your monthly credit card statement for the monthly interest rate and use our free online ‘credit card calculator’ to work out what monthly interest is being accrued each month.
If you cannot afford that chic new car … don’t buy it. Opt for a 2nd hand or even demo vehicle of the same kind. A brand new vehicle generally loses value within its first year.
5. Debit Cards
Debit cards reduce the risk of getting yourself into debt, as you are limited to the funds available in your account. Most debit cards allow for a low overdraft amount, however, the interest rates are generally high.
TIPS ON STAYING OUT OF DEBT
- Only spend less than you earn – create a monthly budget (see Free budget planner provided).
- Pay your credit card account in full each month as this will save you money by avoiding high interest charges.
- Withdraw a weekly cash budget to be used for everyday expenses.
- Avoid using your credit card to pay off debts or monthly expenses which you are unable to afford on your monthly income.
- Avoid using your credit card to buy expensive gifts or for holidays.
- Avoid using your credit card to pay off a student loan. There are companies who assist with student loans at far better interest rates than credit cards offer.
- Just think, if credit card interest ranges between around 9 and 15%, you are essentially paying an item off twice over 6 to 12 months.
- Do not buy on impulse – those extra few hundred rands add up at the end of month (using a fixed amount of cash for the day helps avoid over-spending).
- Keep a list of the luxury items you enjoy and only purchase them at month-end should you have income leftover
- Strive to limit yourself to one credit card! Use it for emergencies only (such as medical emergencies)
If you need assistance – check out the debt counselor’s services in “Contact An Advisor” – but this should be your last option, first get financial planning advice before you make any decisions.
