Debt is a part of life, and sometimes it gets out of control. Millions of South Africans are in the same boat as you. Don’t be embarrassed about your debt and don’t avoid it. Take charge and crush it with this step-by-step plan.
Three things you need to help you draw up your debt plan
Every good plan needs to have accurate, up to date information and an end goal! Here’s what you’ll need to help you draw up a good debt control plan:
A complete picture of your debt
Make a list of all your debts and the details of the debts including who you owe money to, how much (in total and each month) and the interest rate charged. Then add up the total amount owed and repayments due each month to get a complete picture of your debt.
An example of your debt picture
Creditor (company you have the debt with) Amount outstanding Monthly repayment amount Interest rate Store XX R4 500 R360 17% Personal loan from XX R6 000 R900 20% Home loan from XX R650 000 R4 500 7% TOTAL R660 500 R5 760
Top tip: Don’t judge yourself for having debt, however much you have. Remember that this is about the future – getting your debt under control – so aim to feel good about the future, not bad about the past!
Decide on your goal
You need to know what you want - less debt, no debt or some debt.
For example, you may want to pay off all your debts, or only some of them such as the expensive short-term debts (personal loans, store accounts, credit cards), while keeping long-term debt such as a home loan, which is building your generational wealth.
You should also decide on an end date, for example by 31 December 2022 you want to have reduced your debt by 30%. However, achieving your goal by your end date will depend on your budget – which is the final piece of information you need.
Draw up or review your budget
You need to know how much you can afford to put towards your debts each month. Review your budget to find this number.
Draw up your debt plan
Now that you have all the information and know what you want, you can draw up a plan to achieve your goals! Your plan will depend on your budget and whether you can afford your current monthly repayments (and more) or not.
If you can afford all your repayments each month (or more)
There are a few different ways you can reduce or clear your debts. The simplest is to pay the agreed repayment amount each month and not take on any extra debt. However, if you have a few extra rands in your budget you can clear your debt quicker by:
- Paying an extra amount into the most expensive debt (the one with the highest interest rate). This ensures you don’t pay high interest amounts for too long.
- Clearing small debts first. For example, pay off your store account as quickly as you can by paying more than the minimum payment each month. This ensures your motivation levels stay high because it is satisfying when you clear a debt, even a small one!
- Paying a little extra towards different debts each month. This will reduce several debts at once. For example, if you have an extra R300 for debt repayments you can add an extra R100 to three repayments.
When you decide which option to take, build it into your budget and commit to paying the amount each month.
If you cannot afford all your repayments each month
Again, don’t stress too much – this happens to many, many South Africans. There are two ways to solve this problem:
Negotiate lower repayment amounts with your creditors
Work out how much you can afford, and call your creditors, explain your situation and ask for a lower payment that you can afford. You may need to show your creditors your budget and plan, so have this ready when you call. Also be prepared to explain that you would rather repay an affordable amount than miss payments or short pay.
The advantage of paying off debt this way is that you are in total control and aren’t prevented from taking more debt if you need to. Plus, as you deal directly with creditors you can build a good relationship with them, which can be useful for future credit applications.
The disadvantage is that your creditors don’t have to agree to different terms and may want to impose charges or changes in the interest rate charged. You also have to stick to the plan, and if you don’t your creditors can take legal action against you, such as getting a court order. You can read more in Legal actions your creditors can – and can’t – take against you.
Enter debt counselling, also known as debt review
A professional debt counsellor will negotiate affordable monthly repayment amounts and come up with a repayment plan to reduce your debt. You can learn more about debt counselling in 7 things you need to know about debt counselling.
The big advantage of debt counselling is that it immediately and dramatically reduces your debt stress as your debt becomes affordable and your creditors cannot harass you for payments or take any legal action against you. In addition, debt counsellors have vast experience in drawing up affordable repayment plans and also have existing relationships with many of your creditors, which allows them to negotiate favourable terms.
However, the terms are not usually renegotiable, and you won’t be able to take on any more credit. There are also debt counselling fees you have to pay – although for many the fee is more than worth the reduction in stress knowing that you won’t have creditors knocking on your door for repayments. And, although you will be able to afford your living expenses, there will be very little, if any, left in your budget for extras. You also have to have a regular income to enter debt counselling.
Enlist support for your plan
Staying motivated and committed to your plan isn’t always easy, so enlist some support from your family, friends and work colleagues, as well as your money buddy.
Get help from Truth About Money
Truth About Money offers a debt management service for 1Life policyholders that includes telephonic debt counselling, debt consolidation and debt settlement. You can learn more about the service and apply online on Truth About Money.
You are in control
Ready? Of course, you are! Be proud of your plan and go out there and beat your debt.