Simple ways to tackle debt head-on

DEBT: Getting out of debt requires a change in lifestyle and a commitment to being disciplined over a long period of time.

ACCEPTING that you are in debt and taking action to get yourself out of it means implementing a strict budget and managing your finances responsibly. For many, this may not always be sustainable – particularly when unexpected or emergency costs come up and threaten to exacerbate your debt burden even further.

Kirsten Reynolds-Wood, brand and marketing executive at MyBucks suggests that consumers should attempt to pay off their smallest or most expensive debt first and as quickly as possible instead of trying to fast-track all debt repayments at once.

“In order to do this, you first need to establish exactly how much debt you have. As simple as this might sound, it often proves quite difficult as many people are scared to own up to the enormity of their debt and often feel quite embarrassed to admit how much financial trouble they are in,” she said.

Research released by the South African Reserve Bank (SARB) shows that the total value of consumer debt is close to R1.6-trillion. This has resulted in South Africa being named one of the most indebted countries in the world.

Another report by the Gauteng City-Region Observatory (GCRO) reveals that around 40 per cent of Gauteng residents have some debt against their name or household. The group also found that consumers owe as much as three quarters (75 per cent) of their monthly income to creditors and another 60 per cent are struggling to meet monthly installments for their credit card repayments and home loans. Only 23 per cent of South Africans has money left at the end of the month while the remaining 77 per cent are left flat broke and with no hope of saving for the future.

She said the recent downgrade is likely to make it harder for people to pay off their debt, vehicles and home loans. The downgrade brings with it an increase in the risk premium which means that lenders are likely to increase interest rates because of the perceived greater risk.

Here are some options for consumers to consider when working towards paying off their debt.

1. Put a realistic budget and repayment plan in place

Getting out of debt requires a change in lifestyle and a commitment to being disciplined over a long period of time. Therefore, have a realistic plan in place to help you make the right financial decisions.

2. Negotiate lower interest rates on your credit cards and other bills

Credit card interest rate increases can make it almost impossible to stick to your debt repayment plan. What many consumers may not be aware of is that they have the right to approach their financial services provider and ask them to adjust their interest rate or negotiate a lower monthly instalment. Other bills – such as your internet and cellular service, medical bills and car insurance rates are also worth evaluating and negotiating.

3. Set up automatic payment deductions

Establish and agree on the amounts that you can afford to pay towards your debts monthly and set up a debit order with your bank.

4. Consult a financial planner

Speaking to a financial planner can go a long way in helping you manage your finances and in the long-term control your debt levels. A financial planner will inform you of all your options, provide advice and assist you in setting up a realistic budget.

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Shernovia Reddy

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