Debt has become an intrinsic part of our lives. And getting out of debt may seem impossible at times. A recent study found that consumers with more than R20 000 take-home income per month are paying more than 60% to service their debt.
Many consumers have turned to their credit cards when purchasing monthly groceries. Although this may offer short-term relief, the high-interest rates may have long-term effects.
With car loans, a mortgage, credit card debt, student loans and medical bills, our debt can get out of control before we realize it. Whether you’ve accumulated debt due to a job loss or excessive over-spending, it is possible to eliminate your debt once and for all.
The best way to eliminate debt is to create a debt repayment plan and stick to that plan. The key to becoming debt-free is to remain patient and to stay consistent while you dig your way out of debt.
Here are 6 proven ways that will help you eliminate debt once and for all.
1. Avoid making more debt
Start your debt-free journey by avoiding any more debt. If you keep accumulating more debt it will be harder to pay off. Reduce the temptation for creating more debt by avoiding your credit cards completely.
This includes consolidation loans. These types of loans do not get you out of debt. Consolidating debt with a loan means that you are making debt to settle debt.
Avoiding debt at all costs will help you focus your energy on your current debt accounts. Seeing your debt accounts being reduced every month will help you stay motivated on your debt-free journey.
2. Use the debt snowball method
The debt snowball method is a foolproof strategy to eliminate debt.
How does the snowball method work?
List all your debt accounts from the highest principal amount to the lowest principal amount. Making the minimum repayment on all your debt accounts. However, add any extra money that you have towards the lowest debt amount.
Once you’ve paid off your lowest debt account, use that same repayment amount and put that towards the next highest debt amount. Repeat this process until you’re debt-free.
Remember to still service your other debt and pay more towards your lowest principal amounts.
With the debt snowball method it becomes easier to pay off the big debt amounts making it less challenging. This method will also build confidence and help you take control of your financial situation.
Read our blog post How to Get Out of Debt Using the Debt Snowball Method for more info on this strategy.
3. Ask your creditor to adjust your debt
Another way to reduce your debt is by reaching out to your creditor directly.
You can ask your creditor to adjust your interest rates. High interest rates will keep you in debt for longer. If you want to become debt-free as soon as possible, you’ll need to pay the balance on your accounts. However, every time you make a payment towards your debt a portion of that payment goes towards the interest rate, service fees and admin fees.
If you reduce the interest rate on your debt, you’ll start paying more towards your outstanding balance.
To reduce the interest rate you’ll have to contact your creditor and negotiate these terms with them directly.
4. Increase your income
A great way to help pay off your debt is by increasing your income. Although this is easier said than done, it is not impossible.
The current pandemic has opened up the remote working sector, making it easier to earn an income on the side.
Read our blog post How To Make Money From Home, in South Africa to help you find the perfect side hustle to help you increase your income.
5. Adjust your budget
If you want to become debt-free, you’ll have to adjust your budget to reduce expenses as much as possible. Reducing your expenses will allow you to put more money towards your debt.
You can use the bare-bone-budget method. This is an aggressive budgeting strategy that lets you cut living expenses as low as you possibly can. You will be living on as little as possible for as long you can.
This budget will look different for everyone, but you should always avoid any ‘extras’ like eating out, expensive cell phone bills, luxury items or unnecessary spending. Once you cut these expenses you’ll have more money available to pay towards your debt.
6. Consider professional help
If you’ve tried a few of these methods and you’re still struggling to pay off your debt you may be over-indebted. It may be a good time to talk with a professional.
Talking with a financial planner or debt counsellor may be a good option if you’re over-indebted.
If you’re struggling to afford your monthly debt repayments while covering your monthly living expenses, you may be over-indebted. Debt counselling may be a solution for you.
Debt counselling, or debt review, helps you by consolidating all your debt and reducing your monthly debt repayments. By doing this you’ll have more money available for other monthl;y living expenses while covering all your debt repayments.
Find more information about debt counselling by reading our blog post What is Debt Review?
If you are struggling to make ends meet every month due to huge debt bills, sort it out before it is too late. The last thing you need is legal action from creditors. Once that happens, you will have limited options to help you resolve the problem.
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