When you can’t af­ford to pay your debt

Many peo­ple are drown­ing in debt and don’t see a way out but there’s hope

Move! - - CONTENTS - By Phaka­mani Mve­lashe

BUY­ING on credit is not al­ways a bad thing and ex­perts agree that at one point in your life you ought to take credit be­cause not many peo­ple have a lump sum ly­ing around for huge pur­chases. How­ever, the is­sue starts when you can’t keep up with re­pay­ing your debts. The first sign that you’ve dug your­self into a deep debt trap is bor­row­ing from Peter to pay Paul or to­tally ig­nor­ing calls and let­ters of de­mand from debt col­lec­tors.

GET­TING OUT OF DEBT

Debt is some­thing that can hap­pen to any­one, es­pe­cially as the cost of liv­ing in­creases but salaries of­ten don’t.

“Be­ing in debt can seem over­whelm­ing, but with good ad­vice and ex­pert as­sis­tance, it is pos­si­ble to get out of it. No mat­ter how far gone the sit­u­a­tion seems, it’s crit­i­cal to take that first step and ask for help,” ad­vises Ian Wa­son, CEO of DebtBusters, a debt man­age­ment com­pany.

He says know­ing the dif­fer­ence be­tween good and bad debt will come in very handy when you make fi­nan­cial de­ci­sions be­cause it’s al­most un­heard of that one can cruise through life with­out tak­ing credit to get ahead.

If you can­tot af­ford some­thing, don’t buy it and never make the mis­take of tak­ing out a loan to pay off ex­ist­ing debt.

“Set up a bud­get and stick to it. Start by mak­ing a list of your house­hold in­come, ex­penses, debts and bal­ances and weigh them up against one an­other. See where you can trim the fat and take it from there,” he sug­gests.

There is hope that you can turn this sit­u­a­tion around. Ian says debt coun­selling and debt con­sol­i­da­tion are ef­fec­tive ways you can start work­ing your way out of debt and get­ting your fi­nan­cial life back on track.

STEPS TO TAKE

Na­tional Credit Reg­u­la­tor’s agony aunt, Mama Siza, gives you quick tips on how to han­dle your debt predica­ment bet­ter and even­tu­ally be­come credit wise.

Don’t ig­nore your debt – Re­solve to deal with your in­debt­ed­ness us­ing means at your dis­posal. Get in touch with your cred­i­tors and ex­plain your sit­u­a­tion.

Re­mem­ber cred­i­tors would rather re­ceive small pay­ments from you than none at all, so ne­go­ti­ate lower in­stal­ments.

Don’t be threat­ened or bul­lied into mak­ing promises you can’t ful­fil, you have rights. Avoid deal­ing with your fi­nan­cial is­sues in se­crecy or

through de­nial; make your fam­ily mem­bers aware of your sit­u­a­tion.

Cut down on un­nec­es­sary ex­penses and lux­u­ries.

Pri­ori­tise and pay your debts – For­mu­late a bud­get rep­re­sent­ing all your in­come and monthly com­mit­ments. First pay the bills on essen­tials such as hous­ing, elec­tric­ity and in­sur­ance. Af­ter essen­tials, pay your day-to-day ex­penses like travel and food.

Give pri­or­ity to those debts that carry the high­est in­ter­est rate and then the rest in de­scend­ing or­der.

Avoid bor­row­ing to pay off debt – At all costs avoid us­ing credit cards to pay ex­ist­ing debt. Don’t take on ex­tra credit cards or store cards. If you get re­trenched, use the re­trench­ment pack­age to pay off debt.

Cut down on ex­penses – Elim­i­nate non-es­sen­tial items. Short-term dis­ci­pline will en­sure longterm fi­nan­cial sta­bil­ity for you and your fam­ily.

Make a list dif­fer­en­ti­at­ing be­tween your gen­uine needs and things you merely want and stick to it.

It’s a mis­take to can­cel im­por­tant car and house­hold in­sur­ance poli­cies. Rather tar­get lux­u­ries as this will save you a lot of money.

Sur­ren­der goods for which you are no longer able to make pay­ments for be­fore you be­come over-in­debted.

Where pos­si­ble, avoid pay­ing oth­ers to do things you can do your­self such as wash­ing your car and tak­ing care of your gar­den, among oth­ers.

Start sav­ing – Plan to save money ev­ery month. This means pay­ing your­self first.

With the money you put aside, cre­ate an emer­gency fund for un­fore­seen sit­u­a­tions which may arise.

Be con­sis­tent and ac­cu­rate with your bud­get and keep what is left over.

WAYS TO PAY OFF YOUR CREDIT CARD

A struc­tured, dis­ci­plined ap­proach can help you get out of credit card debt and the fol­low­ing steps may as­sist you to get out of the red if you have over­spent on your credit card:

Take stock of all your debt – Be bru­tally hon­est with your­self and know ex­actly where you stand.

Cre­ate a bud­get – The key is to be re­al­is­tic when you cre­ate a bud­get. You’ll have to make some sac­ri­fices but be sure to give your­self a bit of breath­ing space.

Track your costs – Write down all your reg­u­lar, com­mit­ted ex­penses and track other vari­able ex­penses such as restau­rant meals, en­ter­tain­ment and travel. This will serve as the foun­da­tion for your bud­get. Choose your pay­off strat­egy – There are two com­mon credit card pay­off strate­gies.

The first is to plough all your ex­tra cash into the high­estin­ter­est card while pay­ing the min­i­mum on the oth­ers – which is the fastest way, over­all, to lower your debt. Once the first card is paid off, you have even more ex­tra cash, and should ap­ply it to the card with the next high­est rate, and so on, cre­at­ing a debt pay­off snow­ball ef­fect.

A sec­ond strat­egy is to pay off your card with the low­est bal­ance first while con­tin­u­ing to pay the min­i­mum on the oth­ers. While this is not the most cost-ef­fec­tive way to banish your debt, it’s the fastest way to elim­i­nate debt on a sin­gle card.

YOU CAN TURN THIS SIT­U­A­TION AROUND

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