Finance

How To Get Out of Debt And Become Debt Free

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Most South Africans are in debt with households debts accounting for about  67% of income in 2021. While this is a significant drop from 77% in 2020, debt is still a huge problem in South Africa. It can be argued that debts are good, as it gives you working capital to start a business, pay bills, and many other activities. However, sinking in debt is a very big challenge and can take a toll on you, both mentally and financially.

As a South African, you should strive to work towards getting out of debt to live a more wholesome life. But how do you do you achieve that? It can be challenging and frustrating to get about of debt. But with the right guide such as thsi one, you can manage to plan your finances well and start be debt free.

Here are some tips to follow:

Understand Your Debt

Before you can work toward becoming debt-free, you must first comprehend your existing financial condition. You need to know exactly how much money you owe and what interest rates are attached to each loan or credit card account.

It’s also critical that you maintain track of all on-time and late payments so you can understand how far you’ve come toward paying off your obligations each month. By knowing what debts you have and the perios you have to repay can help you plan well on how to pay them.

Look at Your Credit Report.

If you’re in debt, you probably know it. But if you’re unsure how bad the situation is, look at your credit report. That’s the best way to see exactly how much debt you have and where it came from. If your credit card balances are getting out of control, consider cutting up all but one or two cards and using only those as needed.

If you possess a credit card with an annual charge but no rewards program, cancel it and acquire another card with no annual cost that offers rewards or cash back on purchases.

Get Organized

Write down how much you owe, including credit cards, school loans, and auto payments, and how much interest you’re now paying on each one.

Also, include any assets such as stocks or retirement accounts that could be used as collateral if you can’t repay the loan (more on later). Once you’ve determined what you owe and what assets you have accessible, it’s time to pick where to begin digging yourself out of debt.

Eat at Home Instead of in Restaurants.

Eat out less, and you’ll save on the cost of food. If you can’t avoid eating out, try to eat at home first. Eat breakfast at home instead of grabbing a coffee and muffin on your way to work. Eat lunch home instead of buying it from a street vendor or restaurant.

If you struggle with cooking, find cheap recipes online and start experimenting in your kitchen. You can even find recipes using only one pan or pot, so cleanup is easy! You’ll save time and money by not having to run out for takeout or delivery every night.

Holidays are also expensive for many people, so try to plan for them by saving up for these events earlier in the year instead of using credit cards to cover holiday expenses in December or January.

Consolidate or Refinance Debt

Suppose you have a lot of different types of debt, such as student loans and car payments.

In such a situation, consider consolidating them into a single loan or refinancing all of your debts into a single low monthly payment that combines all your monthly payments and interest costs.

You could also consider using this approach if you have high-interest rate credit cards but no other debt to combine with those cards. Each strategy has pros and cons; ask a financial professional before deciding which suits you.

Cut Out Unnecessary Expenses

You can’t get out of debt if you don’t know where your money goes. Like most people, you probably have no idea how much money you spend on coffee, takeout, and other small expenses. This is why tracking your spending for a few months is essential before you start cutting back to see where your money is going.

You’ll also want to make sure that your budget is realistic. If you plan on saving R8000 each month and realize that you can only save R3000, this may not be your best plan.

It’s time to make changes once you’ve determined where your money goes each month.

You’ll want to start by cutting out unnecessary expenses and increasing your savings rate as much as possible until it gets closer to 20%.

The best way to reduce your spending is by eliminating the things that aren’t necessary or important to you right now. Do you need cable TV or satellite radio? Do you need those new clothes or shoes right now? That extra money could go towards paying off debt faster!

Create an Emergency Fund

This is money set aside for when life gets in the way, and things go wrong. Medical bills, breakdowns of major appliances, car repairs, and other unexpected expenses can throw a wrench into your finances if you aren’t prepared for them. These unexpected expenses can throw you into debt if you live paycheck to paycheck.

Putting money into an emergency fund allows you to deal with unexpected problems without debt.

Work Toward Paying Off Credit Cards With the Highest Rates First

If you’re in debt, you know it can be frustrating and overwhelming. But there are ways to work out debt and get back on track with your finances.

If you have a lot of debt, start with the ones with the highest interest rates first. Attacking those cards first is essential because they cost you more money. If you have only one card with an extremely high rate, consider transferring that balance to another low-interest card or paying it off as quickly as possible.

Conclusion

Getting out of debt is like a lifetime gift. As seen in the article, there are several ways to get out of debt if you are in South Africa. You can refinance, consolidate debts, or create emergency funds. This will help you be more financially stable and plan for your money better.

 

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