The secret to clearing your debt is to tackle it step by step. Use this guide to help you gain control over your debt – and finances.
Step 1: Budget
Draw up a monthly budget, allocate a fixed amount for everything, and stick to it.
Step 2: Find a second income
If your current income doesn’t cover your expenses, look for extra sources of income – a second job, renting out a room or asking your parents or grandparents to fetch your children from school and supervise homework to save on childcare costs.
Step 3: Set up debit orders
Set up debit orders so that all your accounts are paid within 24 hours after your salary has landed in your bank account. Include your:
- rent or mortgage
- rates
- water
- electricity
- car repayments
- insurance
- medical aid
- school fees.
Step 4: Pay off your credit card first
Credit cards are usually the most expensive debt. Make sure you always pay at least the minimum amount and if possible, pay more to eliminate this debt faster. Once you have cleared it, pay the amount in full every month.
Step 5: Consolidate your debt
This means limiting the number of creditors you have. First, try doing it yourself. If you can limit your creditors to just your mortgage, car repayment and overdraft, it will simplify your life. This would require getting an overdraft at the bank, which is not unusual, to pay off all store and credit cards in one go. But you must negotiate a better interest rate than the rates charged on your card debt, and then close those accounts immediately. Seeing a zero balance makes it very tempting to start buying on credit again.
Step 6: Reach a settlement plan
If the overdraft route is not for you, and if you have accounts that are long overdue, reach a settlement plan with the creditors and stick to it.
Step 7: Check your credit score regularly
According to the National Credit Act (NCA), South Africans are entitled to one free credit report per year, so make use of it. You can check your credit rating with several reputable credit bureaus, such as:
If you have been blacklisted by any company, contact them and settle that debt first. Then insist that they remove you from the blacklist immediately – according to the NCA, they have to.
Step 8: Pay your accounts on time
Pay your accounts on time or even early. This is very good for your credit rating and will increase your chances of getting a loan, for example, if at a later stage you want to buy an investment property that would give you a rental income.
Step 9: Save every month
Once you’ve paid off your short-term debts, start putting away a small amount every payday before you start spending. It could go into an emergency fund, but once you see how quickly it adds up, you’ll want to rather put the money in an investment account. Not only will it grow even quicker, you also won’t have immediate access to it to spend it on a whim.
Step 10: Income protection
Consider taking out income protection or unemployment insurance that will pay you a monthly income for a predetermined period, should you be injured or ill and unable to work or be retrenched. It will give you time to recuperate without slipping into debt again or provide a cushion while you look for a new job.
Debt consolidation
A debt consolidation loan simplifies things by combining all your debt in one loan with a single repayment. Anyone who is struggling to keep up with the monthly instalments on their accounts (on top of debit order and admin fees plus growing interest rates!) or who’d just like to check whether debt consolidation could improve their cash flow, may apply. A consolidated or personal loan from Old Mutual Finance also counts toward earning Old Mutual Rewards.
You don’t have to be an Old Mutual client or member to approach Old Mutual for debt consolidation. Contact Old Mutual on 0860 000 886, learn more about debt consolidation on our website or SMS your name to 44964, and one of our financial advisers will call you back.
This article originally appeared in Today issue 1 2019 magazine.
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