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Are you drowning in debt? Here is how you can get out

By Faeza
24 April 2017

SOUTH Africans have a history of unhealthy spending habits, with many people living beyond their means. This is mostly driven by the notion of ‘keeping up appearances’.

The irony is that most of us are struggling with the rising costs of living and it’s our competitive nature of maintaining, and in some instances even inflating, our current lifestyles that often gets us in trouble.

IF YOU CAN’T AFFORD IT, DON’T BUY IT ON CREDIT

Jan Moganwa, Chief Executive of Customer Solutions at Absa Retail and Business Banking, warns that for the general South African, the rising cost of living could have a

devastating effect. “Consumers are definitely starting to feel the pinch with the rising costs of fuel and food, making it much more expensive to run businesses and manage households,” says Jan. “Yet calendar events such as birthdays, anniversaries and Christmas continue to inspire big purchases. Consumers are still going to keep up with the Joneses despite economic pressures. That’s never going to go away, but we need to change our mindset towards managing our debt.” He stresses that being financially savvy is all about being realistic. “This is going to remain a tough year and given the current tough

economic conditions, consumers literally can’t afford to make bad financial decisions.

Before buying on credit, ask yourself: are you able to pay the balance on your credit card at the end of the month? Is the item you are buying a necessity or luxury? If you cannot afford it and if it’s going to put you under more pressure, then don't buy it,” Jan notes.

PAY OFF YOUR DEBT

A structured, disciplined approach can help you get out of debt. The

following steps will help you get out of the red:

¦ TAKE STOCK OF ALL YOUR DEBT: Be brutally honest with yourself and know exactly where you stand.

¦ CREATE A BUDGET: The key is to be realistic when you create a budget. You’ll have to make some sacrifices but be sure to give yourself a bit of breathing space in case an unexpected expense pops up.

¦ TRACK YOUR COSTS: Write down all your regular expenses and track other expenses that change every month such as entertainment and travel. This will serve as the foundation to your budget.

CHOOSE YOUR PAYOFF STRATEGY

There are two common credit card payoff strategies.

? The first is to put all your extra cash into the card with the highest interest while paying

the minimums on the others. This is the fastest way, overall, to lower your debt. Once the first card is paid off, you have even more extra cash and you should use it to pay off the next account that has the highest interest.

? A second strategy is to pay off the card with the lowest balance first, while continuing to

pay the minimums on the others. While this is not the most cost effective way to banish your debt, it’s the fastest way to eliminate debt on a single card. Every little bit helps in paying off debt. If you are in financial distress or are unable to make your minimum

payment, experts encourage that you seek debt counselling. This process will require you to contact a debt counselling agent who will consolidate all your debt and make payment arrangements with the relevant financial institutions that you owe money. The debt review process aims to leave you with an improved credit score and complete financial wellness.

YOUR CREDIT REPORT

The credit information and research manager at the National Credit Regulator, Darrell Beghin, says you ought to actively manage your credit profile. “You are more able to control your credit if you are aware of your credit report and its contents. This will enable you to understand the likely interpretations and conclusions which credit providers could draw from your record. By doing this, your credit bureau report will not come as a shock

when you apply for credit or are denied credit,” Darrell explains. As a consumer, you are entitled to get a free credit report once a year from any of the 11 registered credit bureaus.

“In excess of the one free credit report, applying for a further credit report will cost you not more than R25,” Darrell advises. She recommends that you should obtain your credit record from more than one credit bureau as different credit bureaus may contain different information about you and it is wise to have a comprehensive understanding of the information available about you. Paying off your debt will give you peace of mind and

financial freedom.