Show debt who’s boss in 2023

6 February 2023
4 minute read
Young woman sitting on couch with laptop

You can be the boss of your debt! Managing your debt doesn’t have to be complicated. Just take the first step and make a few small commitments each day and you will be your own money boss in 2023!

Step #1 Be wary, very wary, of taking out new debt

Debt is one of the quickest ways to sap your bank account and sabotage your financial plans! Be wary of taking out new debt. In particular, avoid debt for non-essential expenses such as holidays, expensive new cars, new tech when old tech works, as well as payday and personal loans.

If you are considering taking on debt, take a time-out before you sign a new credit agreement. Check your budget and look for expenses you can cut or make a plan so you can forgo buying on credit until payday comes. Alternatively, find ways to increase your income to avoid going into debt.

Top tip:  Use store cards sparingly and smartly! Some store cards give you six months interest free and can be used to pay for items such as children’s clothing (always a budget challenge!) without adding any strain to your budget. Just make sure you can easily afford the repayments. Alternatively, opt to use a lay-by option, which is also interest free!

Step #2 Don’t borrow to the maximum

Your dream house is just within your credit limit. With careful planning you know you can afford it! Right? Maybe not. Could you cope if interest rates increased and your repayment increased by R1 000 or more? Without a little extra in your budget your dream home could become a budget blunder! Don’t let it happen to you.

Borrow less than the maximum you qualify for on your credit cards, store cards, home, vehicle and personal loans so you can easily make repayments if interest rates rise. Keep in mind that your other expenses may rise too, such as higher food and transport costs, which can also eat into your budget and make it difficult to make loan repayments if you have lent to the maximum. Be guided by affordability when you take on debt. Don’t be guided by how much you qualify for! Ever!

Step #3 Pay a little extra each month

It really can be a little. For example, if you have a loan of R10 000, at 11% interest rate, and are paying R500 a month, you will pay the debt off in January 2025, incurring R1 097 in interest along the way. Now, increase your payment to R550 a month, and you can pay off your debt by October 2024 and save over R100 in interest as you will have paid only R989 in interest!

Adding just a few rands to a debt repayment will make a difference, and as you see your debt reducing, you may well be inspired to pay even more, saving you hundreds, if not thousands in interest!

Top tip: Check that there are no penalty clauses or costs for paying off debt sooner than stipulated in the debt agreement.

Step #4 Take regular stock of your debt and get help if you need it

Once a month, check how much debt you owe and make sure you can make the repayments on time. If you are not making repayments on time and cannot find additional sources of income, consider expert help.

A financial adviser
Who can help you with your budget and find ways to make it balance, such as cutting expenses or suggesting ways to increase your income. They can also help you draw up a debt repayment plan.

Your creditors
Talk to the companies you owe money to and explain your budget and affordability constraints. Ask how you can make repayments more affordable, such as restructuring your debt. For example,  extending the repayment term, which will make your repayments more affordable.

Debt counsellors
Registered debt counsellors can assess your debt situation and help you decide if you should enter debt review. In debt review, your debt repayments are restructured to make them more affordable, and your creditors can’t harass you for payment.

Consolidating debt, yay or nay?
It depends! If you prefer the convenience of one repayment this can work well for you. However, you must always, always, check that you don’t end up paying a higher overall interest rate or additional charges. For example, if you have R100 000 worth of debts, but R70 000 of that debt is at prime (10.75%) and you consolidate your debt at 13%, you may end up paying more! A financial adviser can help you with these calculations.

Take your finances to where you want to be

Make 2023 the year you take control. Use debt to grow your wealth, don’t take on unnecessary debt and pay off as much debt as you can. That’s your challenge for the rest of the year! You can do it if you start now!

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