Yes, you can get out of debt (and it doesn’t have to take a lifetime)
You can get rid of your debts. (Image, Pexels)
We all yearn for financial freedom and the triumph that comes with it. When you are in debt, having this financial freedom can seem impossible. Managing your finances doesn’t have to be a daunting task. And let’s not forget that we are living through one of the most difficult times that each of us has faced before.
For most people, Covid-19 has not only been physically and emotionally draining, it has also been financially devastating. And as a result, many of us now find ourselves paying off our debts, leaving little money to save.
Of course, not all debt is bad. Home loans, vehicle finance, education finance, and business finance can all be great ways to advance into the future you want. But there are also debts you want to avoid, like high credit card balances, runaway store accounts, and impulse buy loans, to name a few. Some of this “bad” debt has been inevitable over the past 18 months, but if you find yourself spending a large chunk of your monthly income to pay off your debt, now is the time to take action to pay off your debt.
The good news is that while it may seem impossible now, with a little careful planning, it is possible to get out of debt and transform your financial reality. Here are five ways to do it:
1 – be honest with yourself
The first step towards a debt free life is to recognize all the debt you have. It takes courage, but it is essential. Sit down and make a list of every penny you owe on cards, loans, financing deals, etc. Including how much you are paying off each debt as well as seeing how much money you will free up by paying off your debts can be incredibly motivating.
2 – Make a plan (realistic)
When you see all of your debts in one place, it can be tempting to tell yourself that you’re going to settle it all at once. You are not. Instead, focus on one debt at a time – preferably the one with the highest interest rate first – and find a way to pay a little more than the minimum required repayment for a particular debt each month. It may take some sacrifice, but it’s worth it. Once this first debt is settled, move on to the next, and so on.
3 – Don’t forget to save – even if it’s only a small amount
It’s a common misconception that if you’re in debt, you shouldn’t be trying to save. The truth is that saving, even if it is a small amount each month, is one of the cornerstones of getting into debt and avoiding debt. Having a savings balance allows you to pay cash for things that you would previously have bought on credit. So having a nest egg is like a safety net, preventing you from getting into debt again in the future.
4 – talk to your bank about debt consolidation
Debt consolidation is taking out another loan to pay off most, or all, of the smaller amounts you owe. It may seem counterintuitive to take on more debt when trying to get out of debt, but a consolidation loan usually gives you a better overall interest rate, which means your debt is cheaper and you can pay it off more. quickly, even paying off the same amount.
5 – don’t try to go it alone
There is no need to be embarrassed by your debt. And there’s also no need to try to pay if you’re on your own. A financial advisor or consultant from your bank may have some great ideas to help you get out of debt faster and easier. Or there are plenty of reading materials available – like Nedbank’s Free Essential Guide to Money Management, which not only contains valuable debt information, but also a range of information, tips, and guidelines for help you with all aspects of good money management.
And once all this debt is paid off, what to do?
The simple answer is to make sure you don’t fall back into those old money management mistakes. Avoiding them and avoiding debt is as easy as taking a few proactive steps. For example, if you have to use that credit card, try to pay it off in full at the end of each month. It is also worth making a real effort to start budgeting. Even a basic monthly budget will help keep your spending on track and avoid falling into the same debt traps down the line.
And finally, focus on building up your savings. Now that you have the money you were spending to pay off your debt, saving it is the wiser approach. That way, when an emergency strikes or you encounter a deal that you just can’t pass up, you can pay it off in cash rather than having to rely on expensive credit.
The Essential Guide to Money Management: Take the Right Steps to Build a Healthy Financial Future | Download the free guide
This article was written, sponsored and provided by Nedbank.