Tips to tackle your debt
South Africans are some of the biggest borrowers in the world. We borrow money to buy houses, start businesses, pay education fees and settle healthcare costs.
An alarming number of South Africans are also borrowing money to cover their day-to-day expenses – to pay for groceries, put petrol in their cars or keep the lights on at home.
It is essential you pay at least the minimum amount owed every month. But you should try to pay as much money as possible toward your debts. You could consider working a second job or starting a small side business to earn extra money which you could use to pay toward your debt.
Too many people aren’t prioritising the payment of their debts. This leads to many having to apply for debt counselling to have their debt sorted out by a professional. If you are one of the millions of South Africans who are in debt, we’ve compiled some advice for different strategies on how to pay off your debt.
This method of debt payment encourages you to pay off your smallest debt first. It has been made popular by US-based financial advisor Dave Ramsey. He suggests you list all of your debts and make it a priority to pay off the one with the smallest balance, without taking interest rates into consideration. This despite most advice encouraging you to pay off the debt with the highest interest rate.
Says Ramsey: “This step will make a huge difference in your everyday life. You’ll use the debt snowball to knock out your debts one by one, from smallest to largest. Pay off the first one. Then add what you were paying on it to the next debt and start attacking it.”
According to Ramsey, this will encourage you to remain motivated throughout your debt payment process because you’ll see results.
“As each debt is paid off, your cash flow will increase and the bigger debts will be gone sooner than you think. Before you know it, you’re debt-free!”
Pay off high interest loans first
At the other end of the spectrum is the option to pay off high interest loans first. The advantage to this is decreasing the amount of money paid toward interest and decreasing the amount of time spent paying off loans. But the disadvantage to this method is not seeing real improvement being made to the amount owed. This can lead to you becoming discouraged from tackling your debt and slide back into the habit of paying only the minimum amounts while continuing to accumulate debt.
A debt consolidation loan is one which is taken out, usually at a low interest rate, to pay off other, smaller loans. These types of loans are usually to replace several high-interest, short term loans like credit cards or store cards with just one low-interest, longer term loan. Debt consolidation allows you to see all your debt in one place and focus on paying it off, one month at a time without the complication of multiple payments. In addition, this can help you save money on the fees and charges of multiple loans.
There are a number of different ways to go about paying off your debts. An important factor to remember is to try pay above the minimum amount owed. This helps to decrease money and time spent paying the debt. Above all, keep paying for as long as it takes to be fully paid off and out of debt.