Tackling debt is crucial to financial freedom, but this can be overwhelming when you don't know where to start. Here are practical steps to help you work towards dealing with debt one bill at a time.
Keep track of all your debt
According to the South African Reserve Bank, South Africans use 9.4% of their income to service debt. It can amount to thousands of Rands being wasted in a year, which could have been used towards other financial commitments or investments. It is crucial to make a list of all your debt and the amount that is owed towards each.
Avoid taking on more debt
When it comes to making ends meet financially, it is tempting to take out another loan or put more things on a credit card. However, this can be detrimental for anyone who is looking to manage their debt effectively. Almost 80% of South Africans that were surveyed by PayCurve revealed that they used expensive unsecured loans to help them meet their monthly obligations. While this may seem like a solution, it can prove to be costly down the road when you already have existing debt.
Pay something than nothing at all
Whether you are dealing with a small amount or a large sum, it is vital to stick to a monthly payment that you can manage. A common mistake that people make is avoiding to pay anything towards their debt until they are financially stable but this can result in the amount that you owe increasing. Set and stick to an amount that you will be able to pay each month. Pay more when you can and help decrease the amount you owe. Always remember that every cent counts.
The snowball effects
The same way that a snowball builds momentum by starting small and gradually growing larger can be one way to approach handling debt. What this means is, start to pay off the small amounts of debt and gradually move to the larger amounts. This can help give you momentum when it comes to cancelling your debt. You can also reverse it by tackling large debt that has a high-interest rate and working your way down.
Check your financial habits
We all have financial habits that can either make or break our goals for financial freedom. Assess the triggers that cause you to spend more or spiral into debt.
You may need to speak to a financial advisor who will help look at your finances from an objective perspective to help you maximise your funds effectively.
A practical way you can start is by assessing your budget. Look at the things that you do not need to help you cut back on your expenses. You may have to downgrade on some items. But always remember to be honest with yourself.