7 Ways to get out of debt

While being in debt may make you feel like you have a constant noose around your neck it is possible to manage your way out of it, finds Jessica Anne Wood.

According to recent data from credit bureau Compuscan, people are managing their finances better during the second quarter of 2015 compared to the previous quarter despite increased financial pressure.

Compared to the previous quarter, Compuscan noted a 7% (273 000) decrease in the number of accounts with adverse enforcement statuses than the previous quarter. “These statuses indicate that the accounts have been handed over or written off, assets have been repossessed, or facilities / credit cards have been revoked as a result of non-payment,” explains the credit bureau.

“The decreased number of accounts with adverse enforcement status codes underlines a trend of stabilising consumer delinquency and it seems like consumer behaviour has actually improved in the last quarter. This could mean that consumers are making greater efforts to prioritise their credit repayments,” says Jacobus Eksteen, senior data analyst at Compuscan.

But this change may not be solely down to consumers being savvier with their money. Another reason why fewer people now have adverse listings could be that lenders are cutting back on the number of people they lend to and also reducing the number of loan extensions.  In other words, lenders have had to be stricter about who they give out money to. This means fewer people have fallen into the debt trap as a result. “Credit providers have had to reassess their lending criteria, both in terms of credit risk and affordability, due to the challenging regulatory environment and because consumers are facing financial strain,” reveals Eksteen.

However, not all is good news. Compuscan points out that “the number of credit-active consumers that are in arrears is higher than those whose payments are up to date, and consumers’ debt to disposable income ratios remain high on the whole.” This means that people are spending more on debt than what they earn.

If you are struggling with debt, there are things you can do now to manage your way out of it.

How to get out of debt now

Here seven tips to help you manage your debt:

  1. Draw up a realistic budget and stick to it. List all your debts and when you need to pay them by. Find out how much you are paying in fees and interest on each loan. This may be a scary exercise to do but it’s best to know exactly what you are in for. This can help you prioritise which debts you should pay off first.
  2. Cut back on spending. If you are struggling financially, avoid spending money on wants and focus on your needs and paying off your debts. This includes spending money on luxury items that are ‘nice haves’, but not necessities. So cut out on unnecessary things like dining out, getting takeaways and rather make your own coffee at home than pay R20 at your local coffee shop for your morning boost. While paying R20 a day on coffee may not sound like a lot, if you do this consistently on each working day in the month that alone amounts to at least R400 that you spend just on coffee!
  3. Be proactive when you are aware that you cannot afford a repayment. When you know that you will not be able to make a payment, inform the credit provider and try to come to an agreement about how you pay this back. You’ll find that lenders will be far more understanding if you make a payment arrangement with them than if you were to ignore the problem and simply not pay.
  4. Do not avoid bills or letters of demand from credit providers. If you are unsure about what they mean or how to handle them, speak to your financial advisor or debt counsellor. Dealing with debt on your own? You don’t have to. Rather speak to a debt counsellor* or financial advisor who can help you draw up a plan to get you debt free over a certain number of months or years. Getting debt free will take time and commitment from you. There’s no one quick fix solution for getting out of debt.
  5. Avoid accumulating further debt when you are already struggling to pay off your current debt. If you are struggling with debt you owe now don’t fall into the trap of getting another loan, effectively ‘robbing Peter to pay Paul’. It never works and what you end up with is getting caught up in a vicious cycle of debt.
  6. Become more disciplined about money: Often the reason we get into debt is because it is easily accessible. If you know you aren’t disciplined about money get rid of any temptation or easy access to credit right now. That means cutting up your store and credit cards and never using them again. Rather rely on your savings if you need money in an emergency. Credit, particularly store and credit cards, are expensive and difficult to pay back.
  7. Sort out your banking: Now that you’ve cut up your access to easy credit (literally), close those loan accounts too. Better yet, see if you can switch to a bank and savings account that will charges you less in fees. Bank charges can all add up and you need to save money where you can.

 

*Moneybags has collaborated with South Africa’s largest debt counsellor, DebtBusters. They also have Consumer Debt Help, which specialises in helping people who earn a small income but have large amounts of debt. For more on how to get help, and apply for debt counselling through Moneybags, click here.