Debt is a common problem for many South Africans, especially in the current economic climate. According to the National Credit Regulator, the total consumer debt in South Africa was R1.9 trillion as of June 2020, and 40% of credit-active consumers had impaired records. This means that they had missed three or more monthly payments or had an adverse listing, judgment or administration order.
Debt can have serious consequences for your financial well-being, your mental health and your relationships (there are several things to consider before getting into debt). It can also limit your opportunities and choices in life. That’s why it’s important to learn how to manage your debt effectively and avoid falling into a debt trap.
In this article, we will share some tips and strategies from debt specialists on how to stay debt-free in the long run. These are professionals who help people with debt problems by providing advice, counselling, mediation and debt review services. They have seen firsthand the benefits of living a debt-free life and the challenges of getting out of debt.
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Here are some of the key points they recommend:
Know your debt situation
The first step to becoming debt-free is to know exactly how much you owe, to whom, and at what interest rate. You can get a free credit report once a year from any of the credit bureaus in South Africa, such as My Score Hero, Experian or TransUnion. This will show you your credit score, your credit history and your current debt obligations. You can also use online tools or apps to track your spending and income, and create a budget that reflects your reality.
Prioritise your debt repayments
Once you have a clear picture of your debt situation, you need to prioritise which debts to pay off first. Generally, you should focus on paying off the debts with the highest interest rates first, such as credit cards, store cards or payday loans. These are the most expensive debts and can quickly accumulate if you only pay the minimum amount. You should also pay off any secured debts, such as mortgages or car loans, as these are linked to assets that can be repossessed if you default. You can use the snowball method or the avalanche method to organise your debt repayments, depending on your preference and motivation.
Negotiate with your creditors
If you are struggling to keep up with your debt repayments, you should contact your creditors as soon as possible and explain your situation. They may be willing to offer you some relief, such as lowering your interest rate, extending your repayment term, waiving some fees or penalties, or accepting a reduced settlement amount. You can also ask for a payment holiday or a grace period if you have a temporary cash flow problem. However, you should be aware that these options may have implications for your credit score and future borrowing ability, so you should weigh the pros and cons carefully.
Consider debt consolidation
Another option to simplify your debt repayments is to consolidate debts into one loan (or repayment) with a lower interest rate and a longer repayment term. This can help you reduce your monthly instalments and save on interest costs. However, you should only consider this option if you are confident that you can afford the new loan and that you will not incur more debt in the future. You should also compare the total cost of the loan over its lifetime with the total cost of your existing debts, and factor in any fees or charges involved.
Seek professional help if needed
If you are overwhelmed by your debt situation and feel that you cannot cope on your own, you should seek professional help from a reputable debt specialist. They can assess your financial situation and offer you solutions that suit your needs and circumstances. For example, they can help you apply for debt counselling or debt review, which is a legal process that protects you from legal action by your creditors and allows you to repay your debts in an affordable way over a longer period of time. They can also help you with debt mediation or settlement negotiations with your creditors, which can result in lower interest rates or reduced balances. For the best in professional help, get in touch with us by filling this easy form.
Change your mindset and behaviour
Finally, one of the most important factors in staying debt-free in the long run is to change your mindset and behaviour towards money and debt. You need to adopt a positive attitude towards saving, investing and living within your means. You need to avoid unnecessary spending, impulse buying and emotional shopping. You need to set realistic financial goals and track your progress towards achieving them. You need to educate yourself about financial literacy and seek advice from experts when needed. You need to treat debt as a last resort and not as a lifestyle choice.
By following these tips and strategies from debt specialists, you can take control of your debt situation and work towards becoming debt-free in the long run. This will not only improve your financial well-being but also enhance your quality of life.
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