If you’re struggling to stay on top of debt repayments, a debt management plan can be helpful. When you list out all your monthly commitments and cut back on discretionary spending, you’re able to get a clear view of how much money you can allocate to paying off your loans. Here’s how you can create a plan that actually works for you, with helpful tips and strategies.
Good to know: the term “debt management plan” is used overseas to refer to the process we call debt counselling – also known as debt review. For more information on debt counselling specifically, you can check out our guide here.
If you’ve been missing payments for some time and are struggling to cover essential spending as well as your loan commitments, you might be over-indebted. Debt Rescue’s registered counsellors can help you get back on your feet through a legally-protected process, acting as debt management consultants.
What is a debt management plan?
In South Africa, debt management is a strategy you develop for getting out of debt. It starts with drawing up a monthly budget, so you know exactly what your commitments are, and a list of your loans. You can allocate any extra money you have to paying off your debt faster.
Tip: Check that your debt management strategy is SMART
Remember SMART goals? Achieving what you set out to do is much easier when you have goals that are Specific, Measurable, Achievable, Relevant and Timebound. If you use SMART methodology to set up a debt management plan, you can get out of debt faster and with less stress.
Here’s the step-by-step…
Step 1: Set a budget and make a list
Drawing up a list showing your income, your household expenses, and your monthly repayments will give you a clear picture of how far your money has to stretch. Don’t forget to list how much money you spend on discretionary categories such as entertainment, leisure, hobbies, and dining out.
Alongside your budget, you should also have a list itemising all your debt, including the full amount owed, the monthly repayment, the term of the loan – ie, how long it will take to pay it off – and the interest rate you’re being charged. This helps you prioritise which loan you should pay back first.
Step 2: Look for expenses you can cut
Go back to your list of discretionary spending and see where you can cut down. You don’t have to cut back everything – because that might not be sustainable – but any extra funds you free up can help you in your debt management journey.
Step 3: Prioritise debt repayments
Now it’s time to put those funds to work. Choose one debt that will be your first priority for repayment. Keep paying the minimum amounts on all the others, but put any extra money you have towards paying off the one that you’ve prioritised. Here, you have two options:
- Strategy 1: Pay off the biggest interest rate first. This will save you the most money over time. However, many people prefer a second route.
- Strategy 2: Prioritise the smallest debt first. Paying off one debt in its entirety gives you motivation to keep on going.
Step 4: Keep going!
Getting out of debt requires commitment. Monitor your spending so you can see if you need to correct course. You might need to periodically adjust your monthly budget to take inflation into account. Hopefully, you’ll start feeling more in control and can breathe easier as your debts become more manageable. However, if you find you’re slipping into more debt, it may be time to contact a debt counsellor.
When to consider professional support
Sometimes, even the most rigorous plan won’t be enough to pay back the full debt. If your expenses exceed your income, you may be over-indebted. If this is the case, working with a debt management company such as Debt Rescue can help you get on top of your debt. If you qualify for debt review, your counsellor will negotiate a lower monthly payment with your creditors, and you’ll be protected from legal action while you pay back the debt. Apply here at no obligation.