How to manage the debt you’ve accumulated during the COVID-19 pandemic

Not only does it put a strain on your finances, but it can affect your emotional well-being. For many people, having large debt amounts that you struggle to keep up with can lead to anxiety, stress and depression.

The impact of your well-being can be even higher now that we’re amid a global pandemic. Not only do you still need to keep the promise you made to creditors, but this is also the time where you need to use your money wisely to ensure you and your family have all that you need to live comfortably.

Unfortunately, now, when a family member gets laid off or experiences a pay cut, it’s an even bigger burden to carry.

This is not to say debt is bad, but when it’s not managed mindfully, it can have consequences as you never know what might happen in the future.

Take the COVID-19 pandemic, for instance. No one saw this coming, and it has left many South Africans in tight financial situations. Read below to learn how to manage your current and the new debt you’ve accumulated during the pandemic.

Know exactly how much you owe

The first tip in debt management is knowing what you owe. Make a list of all the creditors you owe, outstanding balances, interest rates and calculate the total amount. This will help you get a clear picture of how much you owe and what steps to take to decrease the amount.

We understand that seeing all those numbers can be stressful, but having a clearer picture helps you to see exactly what is going on. Once you start being honest with yourself, you no longer have to fear or stress about the unknown.

Instead, you can find effective ways to work through your debt. Once you’ve made this list, try to avoid accumulating more credit card debt as it will pull you back from your progress.

Contact your creditors

This is a hard time for everyone, and what you need to remember is that creditors are not the enemy here. As much as you are in a tight place, so are they as it is a business. However, because of the pandemic and the financial impact it has, they may have a relief plan for their customers.

So, contact them and find out what their options are during the coronavirus outbreak. Are they lowering their installment amount, interest rates or are they extending their payment due dates?

If you know what’s happening,  you can make informed decisions going forward.

Create a budget

Once you know the exact amount and where your creditors stand during this crisis, you can create your emergency budget.

Our first budgeting tip is to prioritise debts with higher interest rates, or ones where creditors don’t have any plans put in place to ease your installment during the pandemic. This will ensure you do not rack up additional interest or ruin your credit score.

Since South Africa is still under lockdown, you have to find ways to free up extra money, like lowering your petrol bill, to accommodate only needed grocery trips.

Now, the money you have left from petrol and entertainment can go towards paying off debt, food and unforeseen circumstances during the month. Make sure you tweak your budget to ensure you and your family can pay your bills and survive during these times.

Decide on what expenses you need to cut out

Because of social distancing and the lockdown, it may seem like you’re spending “less” than before the outbreak.

Yes, you no longer need to worry about date nights, lunches with colleagues and friends, and petrol is surprisingly cheaper. But, if you aren’t careful, it can be the opposite. Now is the time to be responsible with your earnings, and save where you can for any future uncertainties.

This means that, although you’re cutting back, you’re still paying more in the areas we listed above (water, electricity and food). Perhaps you’re even splurging online. Therefore, you need to be aware and take note of the food items you do not need.

If you see yourself spending too much on food, be it snacks for the kids, microwave meals or baking since the whole family is at home; it might be best to look for ways to cut back. Set a strict grocery amount and try and cook healthy meals.

Not only will you cut back on your spending, but it will also help boost you and your family’s immune system.

Try sticking to a minimum payment

At this moment, you may not be able to pay more than the minimum balance, and that’s okay.

Although you won’t be rapidly knocking down your debt, you can still see small progress. And, it ensures your balance doesn’t accumulate which will eventually put you in a tighter position. Once the economy is running and things go back to normal, you can start paying more towards your debt.

Pay your bills on time

Try and pay your bills on time every single month, even during a crisis.

This ensures that even though you may not have the extra money to pay more than the minimum monthly payment, you’re still paying on time and ensuring your accounts are in good standing. This will also make sure your accounts won’t go into arrears, leading you into more debt.

Consider applying for a personal loan

Now, you may be wondering why we are suggesting more debt during these uncertain times.

Well, personal loans in South Africa can be useful in alleviating your financial burden during the coronavirus outbreak. You can use the loan amount to consolidate your coronavirus debt, ensuring you have one smaller monthly installment to pay.

This will help your personal finances, as it will free up some much-needed funds to help cover home essentials that may have increased since the whole family is reliant on you under lockdown. These essentials can include food, water and electricity bills.

Online budgeting tools in South Africa will help you calculate how much money you have leftover so that you can put it towards your personal loan. Lenders also have a debt insurance cover that can help cover your personal loan costs in the event that you’re laid off or pass away.

Don’t dip into your savings

Right now it may seem like a good idea to withdraw some money from your savings to pay off your credit card debts. But, this is not the right time, as you may need that money in the long run.

Unfortunately, no one knows how long the coronavirus pandemic will last; therefore, you must have some money put away in case of emergencies like layoffs or pay cuts.

Final thoughts

This is a difficult time for everyone, and it can create havoc on people’s finances. But in order for you to overcome debt, you need to be open and honest with yourself about how much you owe and what options you have to ease the financial burden these months may bring.

This may be done by cutting back, paying the minimum amount or applying for a loan and consolidating your debts. But, whatever you choose needs to be helpful and make a difference. Once the pandemic is over and the economy is up and running, you can go back to your list and see how you can improve your debt-free journey.