How to deal with debt fast

With the ever-increasing cost of living many South Africans are swimming in a pool of debt with no life-boat in sight. According to the credit bureau statistics reported for the quarter ended June 2013, the number of consumers with impaired records increased by 189,000 to 9.53 million from 9.34 million in the previous quarter.

If you are one of the 9.53 million consumers struggling with debt, how can you pay it off quickly? And which debt do you tackle first? We provide you with tips and advice on how to get yourself back in the black.

How do you know if you heading toward a debt problem?

According to Eunice Sibiya, head of consumer education at FNB, small indicators, such as having to borrow money from friends and family to pay for necessities such as rent, or using one card to pay off another are just some of the tell-tale signs.

“If you are occasionally making late payments or only paying the minimum on cards it’s a sure sign that your debt is out of control,” says Sibiya.

 Admittance is the first step to recovery

Sibiya says that to get out of debt you first need to acknowledge that you are in a debt spiral and start controlling your finances.

“To do this you need to stop increasing debt. This means changing your spending habits. Plan and be responsible for your own finances as many people don’t have an idea of how much they owe. Find out the interest rate on each of your cards or loans,” adds Sibiya.

Keep a track record

Write down every expense for the month, including groceries, clothing, electricity, rent or bond and credit card repayments.

“Once this has been done you will quickly see that there is space to cut down on spending and clear your debt. Do you really need new clothes, or can you wait for a few months?” says Sibiya.

Sugendhree Reddy, head of personal banking at Standard Bank, says the trick to being solvent is to draw up budget, put money away in a savings account every month to cover unexpected events, and then decide what percentage of your income you can afford to spend on loans.

Good debt and bad debt-know the difference!

Reddy says good debt adds value to your life, and fits into your budget because it has been carefully considered and because it can be paid for, even over a very long period.

“If a debt is enhancing your life – such as a roof over your head, or a student loan that offers you long-term rewards, then it is beneficial. It should also fall within your monthly allowance you have set aside for debt and account payments. It doesn’t make sense to borrow a large amount of money so that you can pay a deposit on a house or flat. All that happens is that you create two debts which require repayments, that continue to attract interest and could place stress on your ability to repay them,” says Reddy.

What to pay off first

Because of the high interest it attracts, Sasfin financial consultant, Gavin Came, says credit cards should be the first expense you try to clear when you are in debt.

“You should try, for example, to set aside R500 a month to pay it off over a few months and be ruthless about it. Even if you are not in financial trouble you should always try to pay off your credit card in full each month,” says Came.

Reddy adds that you should get yourself one credit card to avoid the temptation offered by high limits and get the bank to set a credit limit that you can comfortably pay off within your monthly payments if you have to.

Reddy says debt should be paid off according to the interest rates that are payable on them and it is best to pay off short-term debt first, as these attract higher interest rates.

“Make a list of all your debts and then identify those with the smallest balances. Put together a plan to pay the debt with the smallest balances first.  In the case of store cards, pay a little more than the minimum requirement when you can afford to do so. Be disciplined – know how much you can afford to spend on paying back a loan or paying off an account,” she says.

Moneybags says:

The best way to deal with your debt fast is to pay it the attention it deserves and allocating funds you’re your income to pay it off. Try to keep a track record of everything you spend.

It’s essential that you pay off your biggest expenses first! And if temptation is too much for you, cut up that credit card, or at the very least stick to one if you feel you might need one in an emergency.