Last year, things were looking up for South African consumers as food prices finally moderated. This year, the global economy is on shaky ground. Fuel prices are set to spike, and an electricity increase is on its way. We’ll show you how to pay off debt fast, protecting your wallet and your sanity along the way.
Here’s why it’s important to get out of debt
When you’re in debt, you often have higher stress and anxiety levels, impacting your wellbeing every day. Debt impacts your cash flow, leads to higher costs, and means you’re unable to save for your future. Debt reduction means you have better financial security and you’re more resilient when things don’t go according to plan.
How you can get rid of debt fast
We’re sharing five steps that put you back in control of your finances.
1. Draw up a budget
Having a clear view of your income and expenses is the first step to managing your money.
List your essentials – housing, transport, school fees, groceries – and your existing debit orders. Now, add in your discretionary spending – like takeout meals, entertainment, etc. And check your subscriptions too – those small amounts add up!
You can go through your bank statements to identify the average amount you spend on leisure, holidays, and entertainment. While we’re not suggesting you should cut back on everything in this category, anything you save here can go towards reducing your debt.
2. List all your debts by interest rate
Include, for instance, home loans, vehicle finance, any personal loans you may have, credit cards, and buy-now-pay-later arrangements. And here’s the hack: note down the interest rate for each of these as well.
We often don’t consider the interest rate, but you can think of it as the price of the loan. The money we receive – the capital – is the amount originally loaned to us, while the total repayments for the loan are higher, because they include interest charged on the capital.
The debt with the highest interest rate is the one you should prioritise first. Tip: it’s often your credit card, payday loan or personal loan. Paying this off first is the best way to pay off debt fast.
3. Make extra payments
Here’s where the rubber hits the road. You’ve done the analysis, you know how much extra you can pay in, and you know where it needs to go – probably your credit card or other short-term loan. So now you have to commit. Anything extra you can pay in will help you to pay off credit card debt fast. Prioritise paying off this debt while still making minimum payments on your other debt.
Once your credit card is paid off, you can then allocate those repayments to your next-highest-interest loan – and on, and on.
4. Don’t get into more debt
I know, I know… it’s so tempting. Your favourite shop is having a 40% off summer sale. Your friend is travelling overseas and can bring back goodies. You just need to add R200 to your cart to get free shipping.
Stop. Don’t sabotage your efforts by spending more on your credit card just when you’re trying to pay it off. Your wallet will thank you.
5. If you need extra help, contact Debt Rescue
Sometimes we’re just in too much debt. Check whether you’re over-indebted with our debt calculator. When your debt is so high that you’re not able to pay for monthly essentials, you may qualify for debt counselling. This is a legal process where lower debt repayments are renegotiated with your creditors, and you’re protected from your creditors while you are paying back the debt. You will still have to pay back the full amount.
Get an obligation-free quote here.