Eliminating debt is the same as weight loss. Yes, it is very possible but no it’s not an overnight accomplishment. There’s no quick fix in eliminating debt just like there’s no magic pill to lose weight in a flash.It takes time, discipline, homework and a determined attitude.
Firstly you need to calculate three truths: how much of debt you are in, what your total instalments and what interest rate you charged at? Because it is so daunting to face, most individuals are in denial and avoid knowing this. Just bite the bullet and do your homework!
How much of debt are you in? Include your mortgage, vehicle finance, higher purchases, loans, credit cards, clothing stores, personal debt to family, etc. Extremely importantly, did you stand as guarantee/sureties for a business loan for instance? Remember ultimately you are liable so ensure you are updated with the happenings regarding that agreement.
If the business fails to keep up with payments, you will face the consequences. Even if the total of your debt is overwhelmingly high it’s essential that you had a reality check. Trust me when it comes to debt and finances in general, ignorance is never bliss. Don’t learn this lesson the hard way.
Know what your total monthly instalments are! Do you just close your eyes when the debit orders go off praying there’s a little left over for a happy treat? Did you incorporate your instalments into your personal budget? Is the bulk of your salary going towards debt or your personal wealth creation? Is all the debt necessary or is it just superfluous?
Is your debt so large that you end up dipping into credit cards just for your day-t- day basic living expenses month-to-month? Now find out what’s the interest rate and payment plan you have with each creditor. It’s alarming how many clients have had credit cards for years and when I ask them what’s the interest rate they draw a blank. Then when I calculate how much was the actual payment and how much was the rand value of interest paid, they are startled.
Knowing your interest rate also makes you mindful before an irresponsible swipe. Obviously the minimum instalments must be paid to all creditors to avoid defaulting but if you can afford to and are serious about eliminating debt then contribute extra towards the creditor who charges the highest interest. Set a goal to eliminate one creditor at a time.
This will boost your morale when the first one is eradicated then you can move onto the next target. When you have paid up the first creditor, use those funds to increase payment to the next one or else you will just have extra money to squander.
Also if you have a good credit rating, you can possibly negotiate a better interest rate with your banks or consider transferring debt to an institute that can better your current rate.If you opt for this, tread cautiously and read the fine print – you don’t want to jump from the pan into the fire! All in all debt reduction and eventually elimination is very achievable; you just need to eat that elephant bit by bit!
