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.
The lockdown has had a huge impact on the income of many consumers. This has affected consumers’ ability to pay their debt accounts. In fact, 46% of consumers are past due on one or more debt repayments by at least 3 months.
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 salary cut 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 is to remain patient and consistent while you dig your way out of debt.
Here are 6 proven ways that will help you eliminate your debt once and for all.
1. Avoid making more debt
Start your debt-free journey by avoiding any more debt. If you accumulate more debt it will be harder to pay off. Reduce the temptation 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. For more information about debt consolidation loans read our blog post Understanding Debt Consolidation Loans in South Africa.
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. 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.
4. Ask your creditor to adjust your debt
Another way to reduce your debt is by reaching out to your creditor directly.
This may be a viable option to some consumers, but this is not a guarantee.
You can ask your creditor to adjust the terms of your loan. Asking your creditor to reduce the interest rate of your loan will help you pay off the balance of the loan at a faster rate.
However, creditors have no obligation to reduce the terms of your loan account and your request may be declined.
5. Prioritise your debt
If you want to become debt-free, you’ll have to prioritise your debt. Sometimes that means you’ll have to adjust your budget and reduce expenses as much as possible. Reducing your expenses will allow you to put more money into your debt.
Reducing your expenses can be difficult especially if you have other financial obligations like childcare, health insurance, rent/mortgage, vehicle finance etc.
There are various budgeting methods that you could use. Read this article to help you budget while paying off your debt – 4 Ways Budgeting can Help you Stay Out of Debt.
6. Consider debt relief
If you’ve tried a few of these methods we’ve mentioned before and you’re still struggling to pay off your debt, you may be over-indebted.
If you’re struggling to afford your monthly debt repayments and all your monthly living expenses, you may be over-indebted. Debt counselling is the leading debt relief solution.
Debt counselling will reduce your monthly debt repayments so that you can afford all the other monthly living expenses you may have.
Debt counselling will allow you to:
- Lower your monthly debt repayments.
- Restructuring your debts so that you only pay one monthly debt repayment.
- Negotiating with credit providers for reduced payments.
- Protect all your assets from creditors.
Find more information about debt counselling here – What is Debt Review?
If you are struggling to make ends meet due to large debt accounts, sort it out before it‘s 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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