If you know your bank account is in a less than perfect state, don’t bury your head in the sand and keep spending like always. Due to pressures brought on by the economic slowdown, a lot of salary increases haven’t been in line with inflation, so a budget that worked for you four years ago may well be putting you in debt today. Curb your expenses wherever you can, set goals to pay off your overdraft and never put groceries or luxuries on your credit card.

If you are serious about eliminating debt be sure to check out this post from Wonga (who know a thing or two about debt management). It will help you understand that not all debt is bad per se. More importantly, it will teach you how to prioritize better in order to take control of your accounts before things get out of hand.

Here are some other ways to avoid the debt trap in these financially challenging times

Do buy a cheap car 

It’s simple: to stay out of debt, spend less money. But we often get confused and think we need things when actually we just want them. Car debt is the easiest trap to fall into. People feel the need to keep buying ever-more expensive cars to show off their career success, but realistically, it’s the easiest way to stay in debt for years to come. In fact, I have always said that brand new cars are not a sign of wealth; they’re a sign of the depletion of wealth. Buy a cheap car or take public transport and invest the balance in assets that will appreciate.

Don’t forget to read the fine print

Four in 10 women hit the credit card 15 days after they get their pay cheque – if that’s you, make sure you get your repayments right. Most of us pay the minimum requirement each month. But that means we’re only paying off interest, without addressing the actual debt. Instead, you should pay the full interest every month and at least 15% of what you’ve borrowed – it may take a large chunk out of your salary for a while but it really is worth it in the long run. Ultimately, if you’re not paying interest to the bank you’re paying yourself with the money saved.

Learn about finances

While most of us can speak fluent fashion, to our detriment, we aren’t quite as skilled at reading the fine print on our overdraft. Find out whether you’re paying interest by day or month and what it will cost you if you go over your limit. Ideally, you should also speak to your banker about getting a better investment plan that will share you less interest and fewer fees each month. Do some research on financial plans at other banks too; maybe they’ve a policy that’s better suited to your needs.

The upside to paying your debts

1. It’s good for your health. A study in Finland showed that people who have never owned a credit card are less likely to suffer from heart disease.
2. You’ll have more spare time. Those trips to the supermarket, hardware store, and then onto the clothing store, all sucking the life out of your evening and weekends are gone.
3. You’ll be happier. Studies show that we were a lot happier in the 1960s, when credit wasn’t available, than at any time in the recent credit boom years.
4. You won’t feel guilty. While it should not be the case, the reality is that debt stops many of us from saving. Research has shown that only 13% of South Africans have a retirement plan and only 28% of use have any kind of savings or retirement product.
5. Next year won’t be like this one. Because when you pick up your pen and start planning your budget, in just a moment you’ll be planning how you can start saving for special occasions and future years to come.

Things to avoid at all costs

Do not rush into further credit

Paying off old debt with new debt always costs more in the long run that doing a deal with your existing creditor. The worst thing you can do is to take out a microloan to provide short-term relief – the interest rates are crippling.

Do not take advice from a friend

Did you know that a large proportion of South Africans use friends and family as their primary source of financial advice? Unfortunately, friends and family are not usually qualified to help you. Good debt advice doesn’t have to cost a lot of money – a debt counsellor registered with the National Credit Regulator is a good place to start. Phone 0860 627 627 or visit www.ncr.org.za

Do not rob Peter to pay Paul

Prioritise your debts and make sure that your either pay or keep in close touch with the people who could take the roof from over your head, no matter how pressing other creditors are. Remember that the National Credit Act also gives you rights when it comes to repossession, so seek professional advice.

Do not borrow money from family or friends

Nothing puts more strain on personal relationships than this. If you do have to borrow from friends or family as a last resort, ensure that the repayment terms have been agreed and then stick to the agreement.

Don’t do nothing

Taking action will make you feel much better. For example, pick up the phone and ask someone that you owe money whether they will let you pay it back a little more slowly. Ignoring the final demands in your mailbox is letting debt run your life. Even opening one letter is taking back control.