Here are a few practical tips to help you bust out of that debt trap.
- Ask yourself: “Can I afford it? Can I afford to pay off my existing debt with ease while adding this?” If you can’t afford it, don’t buy it.
- Get a credit report to figure out exactly how deep in debt you are (you are entitled to one free report per year).
- Obtain a fresh quote on your insurance every year or (even better) every six months. This way you won’t miss out when better rates come along.
- Know which luxury expenses are worth cutting out. It’s a matter of “want” versus “need”.
- Set up a budget and stick to it. Start by making a list of your household income, expenses, debts and balances and weigh them up against one another. See where you can trim the fat and take it from there.
- Never fall behind on a payment. Once that salary comes in, pay your expenses rather than revelling in feeling flush with cash.
- Never take out a loan to pay off an existing debt. This is one of the biggest mistakes South Africans make, and it sends most people spiralling even deeper into debt.
- Learn to understand interest rates and inflation and prepare for them. You may have no control over them, but setting aside a little extra each month will help to mitigate the effect of these increases when they do happen.
- Know the difference between good debt and bad debt. Good debt – a home or student loan – has a positive impact on your financial status and adds value to your life in a very tangible and fulfilling way. Bad debt is brought on by loans that allow you short-lived delights or non-essential luxuries.
- Read up on debt consolidation and debt counselling and understand how it works.