Does it feel like all your money goes to banks, loans and retail accounts the second you get paid each month?
What would it be like if you could reduce your debt? Just think how much more of your salary or wages you could keep each month!
The great news is that there are several ways to reduce debt. Some are through professional service providers and others require getting creative.
We’ll go over all of them in this post.
How to reduce debt
Alright. So the ways to reduce monthly debt repayments fall into two categories. The first is through professional services, and the second is by being creative.
- Professional services that reduce monthly debt repayments
- Creative ways to reduce debt payments
Most people use a professional service, so let’s start there.
Professional services that reduce monthly debt payments
There are two ways to reduce debt with the help of a financial service provider.
- Debt counselling (debt review)
- Debt consolidation loans
Both services share several traits, but there are key differences. So read the descriptions below to choose whether you want to use: debt counselling (debt review) vs a debt consolidation loan.
Debt counselling (debt review)
A debt counsellor helps South Africans to reduce their debt through debt review.
Debt review takes all of your existing debt and combines it as part of a debt repayment plan with a lower monthly repayment amount.
Anyone that is struggling to repay their debt and may be considered over-indebted qualifies for debt review. The process makes monthly debt repayments more affordable and offers other benefits such as legal protection from creditors and a consolidated payment amount.
Debt consolidation loans
How debt consolidation loans reduce monthly debt repayments is by paying your existing debt with a new loan (the debt consolidation loan) that has a more favourable monthly repayment rate.
Basically, you take out a loan that costs less per month to cover your existing debt, then you repay the new loan.
This can get risky, and if you’re not careful, can spiral out of control. Furthermore, reducing debt with another form of debt seems risky.
It’s a bit like using a hair dryer (set to hot) to cool your soup.
That’s category 1: professional services that reduce monthly debt repayments.
Now, let’s look at category 2.
Creative ways to reduce debt payments
Anyone can reduce debt without the help of a professional if they do one of these four things:
- Sell an asset, then buy a cheaper one (house or car)
- Adjust living costs
- Get a seasonal or part-time job
- Leverage better credit terms
Yes, of course we’ll tell you how to reduce your debt with each of these methods. Let’s start at the top.
Sell an asset, then buy a cheaper one (house or car)
How do you do it?
Suppose that a big chunk of your debt is money that you owe for car financing. Then all you have to do is trade your car in for a less expensive model.
The profits from the sale will cover your debt, and your total monthly debt repayment total will drop significantly. Most people pay several thousand Rand each month toward a car. Now you won’t have to.
You can even get the same model. Just get an older version or one with more mileage.
Do your maths to see how well this will work for you (you can use a car finance calculator if you’re planning on financing a lower amount.)
Adjust living costs
This one is easy from a practical standpoint. But it can be difficult emotionally. However, you can reduce your debt much faster if you’re able to pay off more of it each month.
Try to save money on a few regular expenses, switch to house brands for a while, carpool or use public transport to save money on petrol.
There are an infinite number of ways to reduce your living cost.
Just make sure that the extra money is going toward repaying your debt.
Get a seasonal or part-time job
Ask around to hear if you can’t land a seasonal job. There are a lot of seasonal businesses that need extra help at various times of the year.
Boost your income by working part-time and put all of your extra money toward repaying your debt.
Leverage better credit terms
Lastly, if it is possible, use any credit facilities that have better terms to reduce your pay-off debt with higher interest rates or bad terms.
This isn’t always applicable, but what it might look like is this:
Suppose you have a credit facility with an interest rate of 16% and a personal loan with an interest rate of 19%. Then you could use your credit facility to settle the debt from your personal loan.
Leveraging better credit terms can help you to save on interest in the long term. Just make sure that you read through the terms carefully to make sure that you are setting yourself up for the best possible outcome.
And that’s how to reduce debt! You’ve got a couple of options, so do some homework and choose wisely. If you want to apply for debt review, then you can try our online assessment to see if you qualify.