“You cannot spend your way out of recession or borrow your way out of debt.”
~ Daniel Hannan
Debt is a massive burden that should never be taken lightly. For many South Africans, debt is a means of survival.
- 4 million South Africans are credit active consumers.
- 04 million South African consumers have impaired records, and our economy isn’t slowing the financial burden on consumers any time soon.
This year has seen exponential changes in the way that consumers manage to survive financially. Not even a third of South Africans are saving on a regular basis. With so many impaired records, a financial crisis is looming in the homes of many working South Africans. Being over-indebted and not taking action, will leave many South Africans with life altering consequences.
The psychological impact from financial stress can change mood and behaviour. It also causes us to take financial risks, such as a payday loan, in the hopes of getting some sort of breathing room, if only for a moment. Negative actions are a direct cause of needing to escape the financial burden of debt. It can crumble a household and break down otherwise healthy relationships. It will also affect your performance in your daily job.
Debt needs to be handled with care. The nightmare does not have to be carried over into your life. Luckily the NCA has made provisions for over indebted South Africans. There are many options available to you that will assist you in getting out of the debt trap. These options are not going to remove the debt overnight. But, they will remove the pressure and stress allowing you to live a healthy, happy life without the daily stress caused from debt.
1# Get Out of Debt: Snowball versus Avalanche
If you have enough money to manage all your debt repayments, but you want to get out of debt once and for all, then these two methods are for you.
N.B In order to get out of debt, we need to pay more than the minimum instalments. We also need to stop using debt all together. Otherwise your efforts won’t really get you out of debt.
Pay all your minimum debt repayments every month, but focus extra money each month on certain accounts.
The snowball method works by paying off the smallest balance first. The aim here is to motivate yourself with quick wins. Once that debt has been paid off, you move onto the next smallest balance, using the money you would have from the closed debt to pay your debts faster. The Snowball method works from the smallest to the biggest outstanding balance.
The Avalanche method works by paying off the debt with the highest interest rate first. The goal here is to pay less on interest every month and more towards your actual balance. Once you’ve paid off the account with the highest interest rate, move onto the next debt repayment with the highest interest rate and so on. The avalanche method works from highest interest rate debt to lowest interest rate.
Remember that you need to make repayments on all your debt. If you cannot manage your current repayments, nevermind paying off extra, then option two may be the better path to take.
#2 Get Out of Debt: One Monthly Affordable Instalment
If you are struggling to make all your repayments every month, Debt Counselling has helped thousands of consumers reduce their instalments to free up additional income for living expenses.
Debt counselling allows you to pay all your debt in one affordable monthly instalment. The process is simple and protects you from being blacklisted. You need to be employed and have a sufficient amount of debt in order for the process to be beneficial to you.
Again, you will need to stop using credit. The only way to get out of debt is to stop making debt.
If you feel you may be over indebted, reach out to Debt Rescue and one of our debt counsellors will do an assessment free of charge. In this assessment, you will be able to get a reduced instalment estimate based on your income and expenses.
#3 Get Out of Debt: Consolidation Loan
Consolidation loans are an option, but we don’t recommend them when you’re over indebted. They work for some people, but many of us simply fall deeper into debt, despite our good intentions. With a consolidation loan, you borrow money to pay off all your loans. You then pay one payment towards your new loan. A consolidation usually comes with an excessive interest rate attached to it. And the criteria is quite strict. Unfortunately, consolidation loans take longer to pay, and you end up paying far more in the end.
To help you decide which option is most suited for you, review your expenses, debt repayments and income. Set a strict budget to see where you can free up some income. The best option depends entirely on how much you afford to pay.
If you can afford to make extra payments, use the snowball or avalanche method. If you are unable to make minimum repayments, it may be worth looking at your legal rights when it comes to credit and affordability through debt counselling. If you have several small debts, and you would like to consolidate into a singular small loan, but you do not have any arrears and are in good standing with your credit providers, a consolidation loan can help you get your finances neater.
Since 2008, Debt Rescue has been at the frontlines assisting over-indebted South Africans. Debt Rescue has managed to help thousands of consumers achieve financial freedom through the debt review process. Contact us now to see how you too can manage your debt affordably.