Taking control of your debt

A great deal has been said about the difficulties that the consumer will be facing in 2016, with interest rates currently in an upward cycle wreaking havoc on repayments, coupled with the rising cost of food and general inflation, it is time to take a long, hard look at your debts.

If you feel panicked by the amount of debt you have and you feel you aren’t just making it month to month, it’s best to start taking action soon, because things are going to get tougher before they get better.

Signs that your debt is out of control

There are a few signs and financial behaviours that indicate that your finances are in trouble or that you are headed in that direction.

Taking out a loan to pay off alternative credit is a sure-fire indication that your finances are in shambles. Other indicators are if you find yourself missing some of your debt repayments and paying a few instead of being able to afford all your debt monthly, then you are in trouble. Also, if you are using credit to finance a lifestyle you can’t afford, you are sadly way in over your head.

The first step is to recognise that you have a debt problem and commit to sorting your finances out. Below are a few tips and tricks that serve as a good strategy to start on your journey to recovery.

Draw up a list of your debts and decide which is the most important to pay off

The first step to take when trying to get rid of your debt is to draw up a list of all your debts and decide which is the most pressing or expensive. Ideally you should aim to pay off the debts with the highest interest rates first.

The higher the interest rate, the more you are paying on servicing the debt. So aim to reduce these debts first.

These debts will include store accounts and unsecured loans, such as credit cards and personal loans. 

Draw up a budget and prioritise your debt

Once you have a better understanding of your debts and which is the most pressing, you can now draw up a budget that will allow you to prioritise your “debt-crunching mission”.

Remember this process shouldn’t cripple the other aspects of your life – so while the idea is to rid yourself of debt quickly, your budget should be realistic and allow you still to live comfortably.

Seek professional help if you can’t manage on your own

If you are highly indebted and are unable to recover on your own, debt review may be a solution, however it should also be a last resort. A debt counsellor will be assigned to you and is responsible for all your finances. However, it still remains your responsibility to keep tabs on the progress made. Take note under debt review, consumers are not able to take on any further debt or use credit cards and will need to stick to a very strict repayment process.

You will only be released from the review process once your debt counsellor gives the go-ahead, which means you can’t voluntarily remove yourself from the process. Debt review is also not free of charge and costs will differ.

Fortunately it’s not all doom and gloom, restoring your finances is possible with a few lifestyle changes, provided you are committed to the process.

It’s important to remember that no strategy will work without a healthy dose of self-control and discipline on your part we all know that you can’t fix a problem with the same mindset or habits that created it.

*Eunice Sibiya is head of consumer education at FNB.

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