The vicious circle of debt is a reality for many people as they have to keep borrowing money to make ends meet in these tough financial times.
But instead of letting debt take control of your life, you should look at the best way that you can pay them all off, one account at a time.
Here are two methods you can use to start paying off your debt:
1. Snowball method
The snowball method is when you pay off the smallest debt first.
The first step to paying your debt using this method, acording to Wonga, is to list all your debts from the smallest amount to the largest, and then commit to paying the minimum repayment amount required on each of them.
2. Avalanche method
The avalanche method is when you pay off the debt with the highest interest rates - such as personal loans and credit cards, first.
Although paying off these debts may take a while, Janine Horn, financial adviser at Momentum, says it is possible if you take intentional steps to do it.
Avoid taking on more debt
While you are paying off your debts you should take steps to stop yourself from borrowing more money.
Here are some tips to try avoid the deeper debt trap:
- Budget
Have a budget that takes care of your expenses and allows you to tame your desires and live within your means.
List all of your expenses as well as your monthly deductions and add them up against your income. If the value of the expenses is more than your income you need to take steps to reduce your expenses.
The extra money that you save from reducing your expenses can be put towards paying off your debt.
- Have an emergency fund
Start putting away money to save three to six months’ worth of your salary in case you have any unplanned emergency expenses. If you don’t, you may be forced to take on extra debt to deal with this.
- Speak to your financial adviser
A financial adviser can help you craft a financial plan to take control of your finances. Make sure you ask your adviser about life cover, disability cover and other long-term investments.
- Talk to your creditors
John Manyike, head of financial education at Old Mutual, says you should approach your creditors as soon as you start struggling to pay your instalments. You can then negotiate new payment terms instead of falling behind.
- Start a side hustle
If your debt is more than your income, you need to find other ways to being in money, including starting your own side hustle.
However, Janine Jacobs, head of financial reporting at Glacier by Sanlam, adds: “Creating another income stream requires sacrifice and hard work and needs to be managed so that it doesn’t impact negatively on your active income or create a conflict of interest.”
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