Debt is a sneaky thing. One moment you are getting through every month with money to spare, and the next you are drowning in bills. Fortunately, you can stop yourself from falling into this spiral by avoiding these common debt pitfalls:
- Not having a budget
The first and probably most common debt pitfall is not having a budget, or having one and not sticking to it. To stay in control, you need to actively track where each and every rand goes, and adjust your budget as you go along.
- Wanting it all – now!
Every time you hear “For a small monthly payment of…”, alarm bells should go off in your head. While it might be tempting to buy a new fridge or couch on a payment plan, it can cost you dearly in the long run. Buying on credit often means that you pay more for an item than you would have if you’d paid cash. Small amounts like R100 per month here and R60 per month there add up much quicker than you think! Unless it’s an emergency or large items such as a house or car, always strive to pay cash. It’s worth saving up for a few months to stay debt-free.
- Pushing yourself to your limits
When buying a car or a house, it’s a good idea to leave extra breathing room in your budget. With homes, buyers often choose properties that are right at the top end of their budget and forget to think about possible interest rate hikes. This is also true with cars, where buyers opt for balloon payments so they can afford the monthly payments. Always buy for less than you can afford, and put the extra money you would’ve spent on the repayment into a saving fund for when you (inevitably) need to fix something.
- Not having an ark
Just like Noah, it’s a great idea to start building your financial ark before it starts to rain. Ideally, you should have enough saved up to keep you going for between three and six months. If that amount seems daunting, don’t worry! Every rand saved is a rand that can help you out of a pinch. A great way to get into the savings mindset is doing a 52-week savings plan. Save R1 in week one, R2 in week two, and so on. By week 52 you will have R1 378 in savings. You can, of course, increase this amount to suit your needs. Doing the challenge in increments of R5 will save you a whopping R6 890 over the course of a year.
- Thinking it will all go away
Ignoring your debt is one of the most dangerous financial moves you can make. Whenever you miss a payment, your debt only grows through compound interest, penalties, and even collection and lawyer fees. Never ignore your debt! If you feel that you are in too deep, give Debt Rescue a call. We can help you with a strategy to get out of the debt spiral.