It’s easy & difficult to get into debt. Financial services companies suggest you borrow only enough than you can reasonably expect to repay. But sometimes unexpected expenses can make it more difficult to climb out of debt to get you back on track.
Some people stay in debt because they’re not sure what to do. As a result, many people have been carrying around thousands of rands of credit card debt for years and families have been destroyed!
Here are some tips on how to get you and your family back on track:
- Cancel the credit card. Credit cards are extremely tempting and, with the high interest, they can be downright dangerous. It is possible to use them wisely and even profit from using them … however, most people don’t use them that way, it’s better to just cancel the card.
- Eliminate non-essential expenses. You know what they are. If you don’t need it, cancel it. You do not need DSTV, trust me!
- The spending plan. I don’t like to use the word “budget” because it strikes fear in the hearts of many. Instead, I like the term “spending plan”, because it inspires images of creating a plan to achieve a goal, taking action and doing something about your problem. You have to decide where your money is going to go before you actually spend it. Remember, your plan should be flexible and have wiggle room because life changes.
- The emergency fund. I know, it’s very common advice, but it’s for a good reason. Without an emergency fund, your finances are at the whim of any urgent situation that comes up. Unexpected medical bill? Home repair? Car repairs? Need to travel to see your sick relative? These things will have to be paid for somehow, and if you don’t have an emergency fund, you’ll either go into debt to pay for them, or you’ll sacrifice your debt repayment for this month to pay for it. Without an emergency fund, it’s almost impossible to get out of debt.
- The debt-repayment plan. Create a plan using the debt snowball method. Tackle the small bills first – this creates a sense of accomplishment right away and frees up money to pay for bigger bills. Although tackling the highest-interest debts first is smarter financially, the difference is small and the psychological boost of the debt snowball is huge.
- Assets. Do you have any assets that can be sold? Even small things sold through a garage sale can help you pay off smaller debts. But the sale of bigger items such as cars, boats, investments and perhaps even homes should also be considered.
- Debt is your first bill. In the beginning, actually, saving for the emergency fund will be your first bill. Once you have a suitable amount of savings, make debt repayment the most important bill and pay those items first. Savings second. All other bills third. By paying debts and savings first, you eliminate the common problem that people have when they make savings and debt the last thing they pay: if something else comes up, there’s not enough money left over for savings or debt.
- Rewards. I am a strong believer in rewarding yourself and celebrating any accomplishment. When a debt is paid off, celebrate, make it a special occasion. It’s a long journey, and you need to be able to look back every now and then to see how far you’ve come. It’s very motivating, and it gets you to the finish line.
- Increased income. Besides spending less and living more frugally, you need to increase your income. If you are working part-time try and find a full-time job, do freelance work or ask for a raise!
Living frugally should be the first thing you do. It is vitally important. But it’s only a part of the equation — spending less only gets you part of the way. Earning more, having a spending plan and creating an Emergency Fund gets you the rest of the way.