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Over indebted?

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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 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 counselling professional about your options.

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