If you're struggling with debt, ignoring the issue will only make it worse. Take control of your finances by following these steps to create a realistic plan to become debt-free.
Step 1: Assess Your Debt
- List all your debts, outstanding amounts, and monthly repayments.
- Get a copy of your credit report to ensure you haven't missed any debts.
- Calculate your total monthly repayments and see how much income remains after deducting these expenses.
Step 2: Seek Help If Needed
- Analyze your spending using bank statements or your banking app.
- Identify areas for cost-cutting and differentiate between needs and wants.
- Create a "bare-bones budget" with only essential expenses and cut out luxuries.
- Consider selling assets or adjusting your lifestyle to free up more money for debt repayment.
- Avoid using retirement savings to pay off debt, as this can create another financial problem.
Step 3: Find Extra Money for Repayments
- Adopt your bare-bones budget and start tackling your debt.
- Aim to break the cycle of compounding interest by paying more than the minimum repayment.
- Share your plans with friends and family to get their support and ideas for reducing expenses.
Step 4: Pay Off Your Debt
- Use extra funds to repay more than the minimum amount on your debt each month.
- Decide whether to pay off high-cost debts or smaller debts first, or consider consolidating debt.
Step 5: Stay Out of Debt
- Set aside savings for financial emergencies to avoid borrowing again.
- Stick to your budget and live within your means to maintain financial stability.
Remember, getting out of debt requires:
- Listing all your debts and interest rates
- Drawing up a budget and cutting expenses to essentials
- Considering lifestyle adjustments if needed
- Exploring debt review if you're over-indebted
- Using savings to repay debt
- Making a plan to pay off debt faster
Credit: This article was originally published on News24, an initiative by the Association for Savings and Investment South Africa (ASISA).
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