- Acknowledge the problem
This is the most difficult step for most of us as many of us harbor the false hope that the problem will disappear or taking out more debt will help solve the problem. Make a commitment to get out of debt and stick to it.
- Determine how much debt you have
Most of us have no clue how much we really owe and confronting this is very scary!! Your credit bureau report has a list of all your debts except those that are not listed like municipal, school, doctor, family and mashonisa debts. With the assistance of your credit bureau report create a list of all your debts. Write down to whom you owe the money to, how much you owe, your monthly minimum payment and the interest rate you are paying on each.
- Do a Budget & Cut your expenses
Find out where there are leaks in your budget and close them to find “extra” cash that you can apply towards your debt repayments. Entertainment, holidays, expensive cell phone contracts, gardening services, TV subscriptions, etc. should be reviewed for elimination or downgrading to cheaper options.
- Reduce or Stop using debt
Getting more debt or continuing to use your credit and store cards will not solve the problem. Reduce or stop using credit completely and focus on repaying your debt. Go on a spending diet by sticking to your budget.
- Prioritize your debt
Put your debts in the order you want to pay them off. Your short term credit and more expensive personal loans should be targeted as these will cost you more over the term of these loans. You should pay extra on these loans to minimize the interest charges. Your home and car loan should be kept up to date.
- Make extra payments on the expensive debt
An unsecured personal of R40 000 with an instalment of R1700 at an interest of 30.5% to be paid over 48 months can end up costing you just over R82 000. So you need to reduce the cost of these loans and attack them first by using the extra money for cutting your expenses to pay extra.
- Move to the next debts on your priority list
When you get your first debt paid off, take the entire amount you have been paying and apply it to the second debt on the list.
Enjoy a little celebration each time you pay off a debt. Keep it small and relatively simple. You don’t want your reward to put you further into debt! You can have a bigger celebration when the debt is all gone.
Bonus step: Continue living debt free
Hopefully, by the time you get out of debt, you will have no further need for debt management. Throughout the debt reduction process, you should be cultivating positive financial habits that will keep you on the path to financial freedom.
If you are still struggling to make your full monthly installments after you have cut your monthly expenses and made lifestyle changes, then your only option might be to seek professional assistance to restructure your debts. The ICS can discuss various debt relief options with you that will allow you to meet your monthly debt obligations while managing to afford your essential living expenses.