Help! How to get out of debt?

Over-indebted?

Consumers nowadays are struggling to get out of debt. According to the National Credit Regulator, an estimated 9.53 million South Africans have impaired records, which means that they are three or more months in arrears in terms of their debt repayments.

When it comes to tackling your debt there isn’t always going to be a quick fix and there won’t necessarily be a fixed strategy that you can copy and paste for each situation. There are however some basic ways of going about coming to grips with your debt, after which you can determine how best to go about addressing these financial woes.

Follow these steps to help you get out of debt:

Step 1 – Record your spending

To get out of debt and improve your financial situation, it’s important to keep track of what you’re spending your money on.

By starting to track your spending habits you will soon be surprised to see that certain expenses which seem insignificant in your daily life can take big chunks out of your monthly expenditure when you start to add them all together.

Step 2 – Categorise your spending

This will give you an indication as to whether your spending habits are healthy or whether your predicament is a result of you spending unnecessarily.

Every unnecessary expense that you cut back on will provide you with more money to allocate towards your debt repayments.

Step 3 – Set up a budget

Set up budgets based on your spending. Take note of how much-estimated income you should receive for the coming month and deduct all of your estimated expenses to see whether you’re actually living within your means and if so, how much money you’ll be left with.

This will give you an indication as to how much additional expenditure you can allocate towards debt repayments (if any).

Step 4 – Determine what you owe

Make a list of the following:

  • Creditors (who you owe money to)
  • Monthly debt repayments for each creditor
  • Outstanding balances for each creditor
  • Rates of interest for each creditor

This will give you a better idea as to how much money you owe as well as which debt is your most expensive in terms of the rate of interest charged.

Step 5 – Prioritise your payments

Now that your financial picture is starting to become clearer you can determine a strategy as to how best to get out of debt.

Focus on eliminating the debt with the highest interest rates first, as these forms of debt (normally credit cards, etc.) accumulate very quickly as a result of their higher interest rates.

Paying off these debts first will result in less interest being paid over the debt repayment term.

Practical tips to help you avoid, reduce and get out of debt

  • Try to cut down on entertainment expenses such as eating out. You don’t have to stop going out altogether, but consider entertainment expenses as a luxury instead of a necessity.
  • Plan ahead. If you know of upcoming expenses in future, plan for them so as to avoid racking up debt at a later point in time.
  • Think twice before buying on credit. Determine whether it is an essential expense; if not avoid it if possible.
  • Review your budget on a regular basis and attempt to eliminate unnecessary expenses.
  • Consider allocating extra money from overtime or bonuses to repay your debt. Discuss other terms with your creditor(s) after making such additional contributions towards your debt, so as to reduce monthly payments.
  • Sometimes you can only stretch your income so far. If time allows and you are so inclined to consider additional ways of generating extra income.

If all else fails and you are simply too overwhelmed by your situation to address it yourself, consider talking to a debt counseling professional about your options.

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Budgeting 101

Alright, there are only 7 Mondays left before 2018 which means that there is not much time left to plan for a better and more prosperous financial year ahead! This brings me to this month’s topic on budgeting! So let’s get down to it.

If you’re much like anyone you know, you’re familiar with our good old friend called procrastination. Nobody likes to admit that they procrastinate, yet every year we promise ourselves that we’ll save more, gym more and spend more time doing the things we love. So, Instead of reaching mid-2018 and saying that hopefully, 2019 will be your year, let’s do what we can; now; to make it YOUR year! Yes, NOW!

Budgeting is simple and if you can stick to your plan this time next year your December could be somewhere wonderful without any financial worries!

What is a budget you might ask? Yes, we’ve all heard the word but what is it really? Well, a budget is a set-out plan of how much expenses you have, what they are for and how much income you have and how to allocate your income based on your living costs. Many people live month to month and cannot understand why they never seem to get ahead. Yes, you do deserve to have fun but that doesn’t mean you can spend money that you don’t have in order to do so. Rather include entertainment into your budget so that you know how much fun you are entitled to.

To start with a budget here is a list of basic items you need to consider:

  • Rent or mortgage – If you own your home then there are additional costs such as rates and taxes and even possible levies.
  • Utilities (Electricity & Water)
  • Car & Fuel – This one is a little more than just your monthly installment as you also need to take into account maintenance on your vehicle. When was your car last serviced? When will you need to purchase new tyres again?
  • Medical Aid or Hospital Plan
  • Insurance (Car, Home & Personal)
  • Food & Household Groceries – This is not inclusive of your eating out costs.
  • Cellphone & Internet
  • Entertainment
  • Retirement
  • Savings

The most important thing about creating your budget is, to be honest about your finances. If you aren’t 100% factual about how much your expenses are, you will never be able to get ahead in your financial future. Also, see your budget planning as aspirational, with knowing your finances you can be real with yourself about seeking out that promotion or finding a second job! Your future starts today, don’t wait for someone else to make your dreams their reality!

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Financial Advisors & why everyone should have one!

With 60% of South Africans struggling to pay their bills each month and a whopping 15.4% only of its GDP saving money it’s clear that we need some help with our finances. With a further study showing that only 30% of South Africans have a will in place it seems rather crucial to have a financial advisor, but what exactly does a financial advisor do and more importantly can I afford one?

Well, I am just an average citizen. I live in an average town, in an average home that I share, because living standards in South Africa are expensive, with my average lower income bracket salary and I have a financial advisor. Why? Well, because I want to improve my financial future and because I do not have the knowledge on how to do it on my own.

When I was in my early 20’s I thought that Financial Advisors were for the top 10% of South Africans, the people who had money to protect and invest. Then I met someone who actually was a Financial Advisor and explained it to me in a way that I could understand. So let me help bring that message forward to you.

“A financial Advisor is someone whose job it is to help their clients, that’s you,  plan for their short and long-term financial goals. These goals may include retirement and education. A financial advisor may provide investment, tax and insurance advice.”

This advice may start from how much savings and debt you currently have to whether you have a retirement plan. Typically the process is very simple and easy to understand. The hardest part is coming to grips with your real financial situation and being honest about your debt and your savings or lack thereof, however, once you have this clarified the planning can begin.

Many financial advisors appointments are free for the first visit and costs going forward will be discussed should you make use of the advice and move forward with your financial portfolio. The legislation requires that all fees be disclosed so once a plan is proposed an investor will be comprehensively advised on what the fees will be.

Things that you will have to think about:

  • Do you have any dependents such as kids? Do you have an educational goal for them such as going to a certain school or a university?
  • Do you have insurance for your personal and household items?
  • What about insurance for yourself? Life insurance can prove to be a lifesaver for your family should something happen to you.
  • Dread & disability cover? A possible risk that we all face during our lifetime is that of becoming disabled due to an accident or illness. In some cases, you might still be able to work, but if your disability is so severe that you can’t continue working, you will need some form of income to cover your monthly living expenses. That is what disability cover is for.
  • Funeral Policy? No one wants to think about dying and that is why it is important to consider having a funeral plan because funerals are very costly and no family member should need to have the additional worry of paying for a funeral plan during such an emotional time.
  • Retirement and investments? It is never too early to prepare for the day you retire.
  • Savings plan? No matter how small the amount, time is your best friend with any savings plan. In my early 20’s I started with R250 saving per month which most months I scrambled to get together but I always did and 5 years later I had saved R15 000!

So there you have it, more reasons as to why you should have a Financial Advisor as to why not! #WhenMoneyMatters

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