By Nico Strydom
It’s much easier to incur debt than to get rid of it, but there are ways you can live debt free.
As with anything else in life the most important thing is to first adjust your mind-set. When you owe money, you don’t just pay back the capital, but also a huge amount of interest. You are also depriving yourself of the money which you could have used every month.
The next step is to make a list of all your debt, including credit cards, loans, clothing accounts and financing. Write down details of every debt item, including the outstanding amount, the interest rate against which you have to pay back the debt, and if you can pay it off quicker without being penalised.
Now you need to compile a thorough budget. A budget helps to ensure that a limited amount of money if applied firstly for debt and expenses and that spending does not exceed the monthly income. It also helps to pay off debt as soon as possible, to start saving and to reach financial goals.
When you start your budget, first write down all your monthly expenses. This includes everything from rental fees or instalments, medical fund, insurance, groceries, pocket money, clothes etc. Then look at every item again and see if you can decrease the amount for that item. Perhaps you can decrease fuel costs by joining a lift club or buying groceries at a less expensive shop?
Should you already have updated your budget, you could perhaps explore the possibility of earning an extra income. Think of any opportunity where you could earn an extra income or save money. When last did you look at your insurance – aren’t you perhaps paying too much? You may save on your life cover if your circumstances have changed.
Keep you budget up to date on a monthly basis by changing the amounts outstanding as soon as you have paid an instalment. If you realise you are saving money here and there, you should try and pay off an extra amount on your debt – look especially at debt items with the smallest amount outstanding or with the highest interest rate.
It is also important to not incur further debt as soon as you have paid off a portion thereof. Remember how hard you worked to get where you are now. Close an account as soon as it is paid up and if it is not absolutely essential.
Try to pay off your debt before you start saving. It is almost always the case that you earn less interest on your savings than the interest you pay on your debt. This means that if you save money while paying off debt you are actually losing money.
It can be an exhausting process to pay off your debt but you will feel wonderful when you succeed in doing so. Remember to not again incur unnecessary debt and live debt free.
Budget Insurance: https://www.budgetinsurance.co.za/blog/money-blog/your-4-step-plan-for-paying-off-debt/