We all strive for financial freedom and the triumph that comes with it. When you’re in debt, having that financial freedom may seem impossible.
Managing your finances doesn’t have to be a daunting task. And it’s worth remembering that we’re experiencing one of the most challenging times that any of us have faced before.
For most people, Covid-19 hasn’t just been physically and emotionally draining, it’s also been financially devastating.
And as a result, many of us do not find ourselves repaying debt, which leaves little money to save.
Of course, not every debt is bad. Home loans, vehicle finance, education funding and business finance can all be excellent ways of moving forward towards the future you want.
But there’s also debt that you want to avoid, such as high credit card balances, out-of-control store accounts and loans for impulse purchases, to mention a few.
Some of these ‘bad’ debts have been unavoidable over the past 18 months, but if you find yourself spending a lot of your monthly income paying back debt, now is the time to take action to get your debt settled.
The good news is that, while it may seem impossible now, with a little careful planning, it is possible to get out of debt and transform your financial reality.
Here are five ways to do just that:
1. Be honest with yourself
The first step towards a debt-free life is acknowledging all the debt you have.
It takes courage, but it’s essential. Sit down and make a list of every cent that you owe on cards, loans, finance agreements and the like.
Including the amount you’re paying off on each debt as well as seeing how much money you’ll free up by paying off your debts can be incredibly motivating.
2. Make a (realistic) plan
When you see all your debt in one place, it can be tempting to tell yourself you’re going to sort it out all at once.
You’re not. Rather focus on one debt at a time – preferably the one with the highest interest rate first – and find a way to pay a little more than the required minimum repayment for a particular debt every month. It may require sacrifice, but it’s worth it.
Once that first debt is settled, move on to the next one, and so on.
3. Don’t forget to save – even if it’s just a small amount
It’s a common misperception that if you have debt, you shouldn’t be trying to save.
The truth is that saving, even if it’s a small amount every month, is one of the cornerstones of getting and staying out of debt.
Having a savings balance enables you to pay cash for things that you would previously have bought on credit.
So, having a nest egg is like a safety net, preventing you from falling back into debt in the future.
4. Speak to your bank about debt consolidation
Debt consolidation means taking out another loan to settle most, or all, of the smaller amounts you owe.
It may seem counter-intuitive to take up more debt when you’re trying to get out of debt, but a consolidation loan usually gives you a better interest rate overall, which means your debt is less expensive and you can settle it quicker, even by paying back the same amount.
5. Don’t try and go it alone
There’s no need to be embarrassed about your debt. And there’s also no need to try pay it off on your own.
A financial adviser or a consultant at your bank may have some great ideas to help you get out of debt quicker and easier.
Or there’s ample reading material available – like Nedbank’s free Essential Guide to Money Management, which doesn’t only contain valuable debt information, but also a range of insights, tips and guidelines to help you with every aspect of good money management.
And once all that debt is paid off, what then?
The simple answer is to make sure you don’t fall back into making those old money management mistakes.
Avoiding them and staying out of debt is as simple as taking a few proactive steps.
For example, if you need to use that credit card, try to settle it in full at the end of every month.
It’s also worth making a real effort to start budgeting.
Even a basic monthly budget will help to keep your spending on track and avoid falling into the same debt traps down the line.
And finally, focus on building your savings.
Now that you have money at your disposal that you were spending on repaying debts, saving it is the wisest approach.
That way, when an emergency happens or you encounter a deal you just can’t pass up, you can pay for it in cash rather than having to rely on expensive credit.
Click here to find out about how MoneyEdge can help manage your debt
Source: Business Tech
