A fist full of credit cards is a common fact of life for many South Africans. Unfortunately most are also up to their necks in debt … and drowning fast. Fortunately, there are ways and means to get out of debt and safely back to shore.
Three step turnabout
- The first step to getting out of the debt trap is admitting that you’re in it! Have a good and honest look at what you owe and, better still, ask for a credit report from one of the national credit bureaus such as TransUnion (www.mytransunion.co.za or call 0861 482 482). Your credit report is a summary of your past and current credit obligations and how well you have managed these.
- Step two is to contact your credit providers, explain that you are earnestly trying to get out of debt and ask if you can please repay under different conditions, for example with lower monthly instalments or interest rates. Do not take out any further loans to help pay off the debt burden you are already carrying.
- Step three is to keep tabs on your repayments and improvements in your credit rating by registering for credit monitoring at www.mytransunion.co.za.
Formulate a monthly income and expense budget
There are many online sites that will help you set a budget. Also read the LifeAssist articles on this site on setting a budget and why having an emergency fund savings account is so important. When structuring your budget, ensure that you pay essentials like housing, water, electricity and insurance first. Then make provision for day-to-day and other expenses.
Cut down on expenses
At this stage, you will probably need to make a list of your needs and the nice-to-haves, which you will have to live without for a while. Should you have items like expensive luxury cars that you can no longer afford, it is a good idea to try to sell these items before they get repossessed. Speak to a registered financial service provider before you cancel any policies or insurance.
Now you can look at the debts you have and do one of two things: try to pay off those with the highest interest rate first and the rest in descending order, or pay off debts with the lowest balances first and then add the amount you used to pay to the instalment of the other debts.
Ensure, however, that you continue paying all your creditors every month, even if only the minimum amount stipulated or a lower instalment as arranged with the credit provider. Also speak to your bank. It may be able to help you consolidate your debts and work out a re-payment plan. Use any excess cash to pay off your debts.
Should you have any money left over after paying all your creditors, save and put the money aside for emergencies that may occur.
Contact a debt counsellor
If you are still struggling to make ends meet, contact a debt counsellor and ask for assistance. The key to successfully paying off your debt lies in the self-discipline employed to stick to your plan. It is important for you to discuss your financial situation with your spouse and children, and help them to understand that life is going to be hard for a while, but it is all worth it in the long run.
Get out of debt for good. 2014. Retrieved from: http://www.graziadaily.co.za
Six ways to manage the debt monster. Retrieved from: http://www.fin24.com
Smallhome, M. 2013. Tips for living with debt. Retrieved from: http://www.fin24.com
Van Rooyen, T. 2013. Quick tips to lower your debt. Retrieved from: http://www.fin24.com
Revised by M van Os