Before the global financial downturn, living on credit was the normglobally. But there has been a worldwide wake-up call and individuals areincreasingly realising that living in debt hampers wealth creation and theimprovement of living standards. The good news is that with the right guidanceand strategy, paying off debt and living debt-free is very achievable. Here aresix simple steps to achieve short-term debt relief.
Step 1: Draw up a realistic monthly budget
Compile a list of your monthly income and expenses. Your income should coverexpenses comfortably. If not, see where you can cut back. Renegotiate interestrates on properties, ask for more competitive vehicle and home insurance quotesand cut down on unnecessary spending. Try distinguishing between your ‘wants’and your ‘needs’ – but don’t cut out all of your ‘wants’, if your budget is tootight and boring, you are more likely to stray after a month or two. Work somecontingency money into your budget and define a realistic amount to save. Ifyou have spare cash at the end of the month, use it to clear your debt quicker.
Step 2: Pay expensive debt first
The higher the interest rate on your debt the more expensive it is, so whenpaying off debt, pay the most costly ones first. Credit card and store carddebts are likely to be the most expensive. These and personal loans can costyou up to 20 percent in interest. It helps to pay more than the minimum amountowed each month because the interest you owe will automatically decrease.
But do not stop paying your other credit providers – you do not want tojeopardise your house or risk losing your car. You could also be blacklisted,which will make it very difficult to obtain credit in future.
Step 3: Become a financial wise guy
Spend smart. It is possible to find good quality and low prices if you shoparound and find out where to find the best deals. Shop around for the bestclothes prices, cell phone package and medical aid deal. Try to refrain fromgoing on a spending spree at the beginning of each month only to dip into youroverdraft by the 15th of the month. Try breaking bad spendinghabits. And refer to your budget to see what is not essential in your monthlyfinancial mix.
Step 4: Live within your means
If you can’t afford to pay cash, you probably can’t afford it. If you haveto put that Louis Vuitton bag or flat screen HD TV on your credit card, it’sout of your price range. Opt for another brand. And when buying a car, don’tover-extend yourself. Choose a second-hand model and finance it over theshortest period possible.
Step 5: Use cash instead of credit
A debit card linked to a savings account, can only be used if there is apositive balance in your account so getting into debt is impossible. This, ordrawing cash, is a foolproof way of staying out of trouble. If you do need touse your credit card, try to pay it off at the end of each month rather thanjust paying the minimum amount owed. That way no interest will be charged.
Step 6: If all else fails, negotiate to pay off debt slower
If you genuinely can’t pay off your debt, for instance, if you have beenretrenched, don’t panic. Contact your credit providers to work out realisticpayment plans. This will keep help protect your credit record and save you somestress.
While these tips will be invaluable in the short term, a bright financialfuture needs planning and a partnership with a good financial advisor. Theywill take a look at your life strategy and help you figure out your financialstrategy over the short, medium and long term.
