Beat your financial woes with a 10-step debt-free plan
JOBURG – Follow this 10-step plan and take control of your debt.
Getting into debt is easy but getting out of debt is hard and living debt-free is the greatest financial gift you can give yourself which needs a plan and the motivation.
Follow this 10-step plan brought to you by 1Life to help you take control of your debt, starting right now. First, six steps that you can do this month to get you going on the path to debt recovery. Then, four more steps for you to take every month thereafter.
Do these 6 things in the first month:
- Get your head right
The first step is committing to the process for the right reasons. When you owe money, you’re not just paying back capital. You’re being charged interest every month you are in debt – and with the hike in interest rates, interest is now costing you more than it did before. When you are in debt, you are robbing yourself of the money you could be using each month or saving for your future.
- Tally your debts
Make a note of every debt you have, including your credit card, bank loans, retail accounts, car finance and home loan.
- Decide on your method
There are two tried-and-tested methods that deliver the best results for paying back your debts. First, The Snowball Method, tackle your smallest debt first and pay any additional funds you can manage into that account every month. The second method is The Avalanche Method in which you identify your debt with the highest interest rate and start paying additional funds into that account first.
- Do a budget
Write down all your monthly expenses, including rent, medical aid, insurance, school fees, food, transport, entertainment, clothes and so on. Then look for every opportunity you have to tighten your belt
- Keep track of it all
Put all of this information, keep track of each lender, the amount owing and each monthly instalment – every time you make a payment, and update each of the blocks.
- Make the first round of payments under your debt-busting plan
At month-end, put your plan into action. Pay back the minimum instalment on all your accounts. Then, put any additional money into the debt with the smallest outstanding balance or the highest interest rate – depending on whether you have opted for the snowball or avalanche method.
Next, do these four things in the months after
- Kill your lines of credit
As you finish paying each debt, close the account.
- Consider overpaying on your asset finance as well
Your home loan and car finance would probably come out last on the additional repayment list, whether you were using the snowball method or the avalanche method. You should try to reduce or get rid of them – but you don’t need to prioritise early settlement to quite the same extent as you have with all your other lines of credit.
- Consider starting to save
The most financially sound approach to take is to use all your extra money to get out of debt first and only then start saving. However, in practice, this doesn’t always make sense.
- Stay debt free, for good
Paying back outstanding debt is a gruelling process but it feels good once it’s done. Whatever you do, don’t start the cycle over again.
If you have taken on more debt than you can afford to pay back using these methods, then you may have to consider debt counselling.
