Become Debt-Free With These 5 Steps
Category Advice
During harsh economic uncertainty, several South Africans have resorted to paying for bills on credit. Whether it’s student loans, credit card payments, clothing accounts or car payments, debt can be highly stressful and often make you feel as if you are drowning in monthly installments. However, once paying off debt becomes a priority in your life it can be easier than you think. Follow these tips to aid you in becoming debt free as quickly as possible:
1. Rank Your Debs According To Interest Rate
It can be tempting to stash those bills away and never look at them, however the best way to solve a problem is to understand where you are so that you can mitigate it. It is vital that you study each of your bills and list the interests of each of your debts from highest to lowest. This is the best way to understand which debt is costing you the most in interest and therefore is the one you would need to pay off first. Once you have the totals listed out with the interest rates on each, you’ll know exactly which debts to pay off first and tackle the ones which are costing you the most.
2. Lower Your Interest Rates
You can often lower your credit card and clothing account interest rates by paying off your debt on the high interest accounts with a personal loan or credit card with a lower interest rate. Shop around from bank to bank and try find a loan or credit card which offers you the best interest rate and then pay off all your high interest credit cards or clothing accounts with the low interest credit. It is vital however to read the terms and conditions of the loan or credit card such as the duration of the debt so that you don’t get stung by the new bank in other ways.
3. Stop Creating New Debt
It will be impossible to mitigate your debt unless you restrain your bad financial habits. It can often be easy to take out a new phone contract or add a few more clothing garments onto your clothing account because it’s “only an R200 or R300” but this will become counterproductive and keep you in the vicious cycle of paying off debt and never seeing a pleasing result from your installments.
4. Create A Strategic Budget Plan
This can be the most important step to taking full control over your finances. Using a spreadsheet or even a piece of paper, write down your total income after tax and then list each of your monthly expenses below. You will then need to study your expenses and rank them in order or importance to you and eliminate the expenses which are considered frivolous and unimportant to you. The goal here is to create a strategic spending plan so that your expenses are lower than your total monthly income, thereafter you can begin using any leftover expendable income to pay off your debt faster by allocating extra funds to each of your debts.
5 Have An Emergency Savings Fund
Realistically, emergencies are inevitable and although nobody expects them, everyone should always be prepared for them. It is therefore crucial that you save money towards having an emergency savings fund. More so, stashing away money for an emergency doesn’t have to derail your plan to pay off your debt. Before you start to really pay off each of your debts, build up a small emergency savings fund of at least R4000 for any additional unexpected expenses or bills that could pop up, such as a car repair or medical bill. This will ensure that you have “rainy day” fund so that while you are tight with money while paying off your debt, you are still prepared if an emergency arises.
The above tips can be powerful in aiding you towards the right direction in finally becoming debt-free. If you really want results then draw up a strategic plan using the aforementioned steps and start working through each method. By becoming serious and strategic about paying off your debt, you will enjoy a debt free future and live a financially responsible life.
Author: Dormehl Property Group
