Are you young and already in debt? Here's what you can do about it

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An illustration. Photo by Getty Images
An illustration. Photo by Getty Images
  • Talking about money is not easy, and sharing financial information has long been regarded as taboo, especially for families struggling financially. 
  • Hence, many young people start working without a thorough understanding of personal finance management and fall into the debt trap.
  • Sonto Lemeko of Standard Bank Financial Consultancy believes getting out of debt begins with a commitment to cultivating a healthy financial life and shares some insights with us. 

For a young woman who recently got a new job, managing a student loan or any other debts while adapting to the ‘adult’ life may be challenging. But Sonto suggests it need not be daunting if you understand how much you owe, the terms of your loans, and the grace period associated with it.

“This information will help you fully understand your circumstances and allow you to make informed decisions about how to develop a budget and repayment plan. If you can, consider making higher payments right after graduation, during your grace period, to significantly lower the amount of interest you will pay throughout the loan,” she says.

financial mangement, Sonto Lemeko, debts, study lo
Sonto Lemeko of Standard Bank Financial Consultancy believes getting out of debt begins with a commitment to cultivate a healthy financial life and shares some insights with us. Photo supplied by Clockwork Media
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Sonto also suggests that you avoid changing your lifestyle drastically and instead continue to live a student lifestyle. Here are action steps that Sonto suggests you take once you start working and your family knows you are now able to contribute to the family’s expenses. 

1 - It’s essential to have open conversations about money with the people we care for and feel financially responsible for. Share your financial goals and give your family members a view of your expenses to help them understand what you can realistically afford.

2 - Find a financial planner who can help you develop a repayment plan tailored to your financial situation. He or she will be able to help you consider your different payment options and their associated costs. Take advantage of financial perks at work. The perks may have the potential to help you save money and improve your financial life. If you’re not sure what your benefits package includes or how to take full advantage of these perks, check with your human resources department to see what’s on tap. Your employee benefits pack may include retirement savings, life and disability insurance, health insurance, some special discounts, health insurance and wellness programs.

3 - Set up an emergency fund for rainy days. You may start with a small amount based on your affordability. You can work your way up to saving three to six months’ worth of expenses for rainy days.

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Sonto also has tips on setting clear financial goals that you’d like to achieve and prioritize. Specifically, make your goals S.M.A.R.T such as:

Specific – Make your goal specific, using a number. So, you might aim for paying off your student loan and saving R5 000 per month to put up a deposit for a new apartment.

Measurable – Your goal should be measurable, meaning you can track your progress month to month to see how much you’ve paid off or saved and where you might need to adjust to reach your goal.

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Actionable or achievable – Actionable means you can take specific action to reach your goal. For example, key steps could be paying R2 000 per month towards a student loan, and saving R5 000 per month may be reviewing your budget to see what you can realistically afford monthly. A second action is to open a dedicated savings account or an investment, while a third is setting up automatic transfers to repayment and savings each payday.

Realistic – Your goal should be practical based on your financial situation. You may want to pay R2 000 and save R5 000 per month, but don’t assume that you can without first reviewing your budget.

Time-bound – Give your goal a deadline, say 36 months or 5 years. This helps you stay motivated and makes it easier to measure your progress over time.

“Do your research on buying your first car and on the basics of home buying as well as options available that can help you be fully prepared once you’re in a position to become a car or homeowner,” Sonto says.

Enjoy your money. You work so hard so you can enjoy the rewards. Find the balance between your financial responsibilities and taking steps towards your financial goals can give you peace of mind when it comes to money.

Do you have any financial tips to share with us? Tell us here.

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