Drowning in debt and we do not even know about it?

Do you remember the very first time you used your first credit card or store card? 

I recall the first time and I was young. I was very excited thinking the world was my oyster, and the bank’s money was there to prove it. Having debt somehow validated me as an adult. I felt very grown-up. Little did I know at the time, that if it’s not managed well, debt has the potential to cause undesirable financial distress. Drowning in debt and we do not even know about it?

It is ironic that in our youth, we look forward to having debt and then spend the rest of our lives trying to get rid of it. If you are one of these adults, take comfort in knowing that you are not alone. 

Credit providers do not do enough to educate consumers about how debt works; and as such, many find themselves suffocating under the weight of debt. If you are in such a situation, these steps may help you get out of debt. One of the basics of being a good debtor is to pay at least the minimum installment of all your accounts, on time and in full.

First things first

Know your debt. Write a list of everyone you owe money to. From your generous aunt who is still expecting you to pay them back, to your bank with whom you have several lines of credit. We call these people your creditors. This list will include your retail store cards, your credit cards, medical bills, student, personal, vehicle, and home loans. Next to each of these creditors, write down the total balance you owe them; the monthly installment you are paying, and finally the interest rate on the debt. Drowning in debt and we do not even know about it?

Small steps 

Pay extra. The more you play, the quicker the outstanding balance will reduce. Choose the debt with the smallest balance and pay extra into this account until you have paid it in full. Another approach is to focus on paying off the debt with the highest interest rate. I prefer the first approach because it has the potential to motivate you as you eliminate your debt. Drowning in debt and we do not even know about it?

Big leaps

Once the first creditor has been paid off, their installment is now disposable. Use this available installment amount to pay extra towards the next creditor. Once the second creditor has been paid off, their original installment together with the first creditor’s installment now becomes disposal. You can now direct this larger sum of money to the third creditor and so you continue with this method through your list of creditors. 

Cut them up!

The more debt you pay off, the more available credit you will have to spend. Do everything you can to resist the temptation to use the accounts or credit facilities again. If you feel that you can’t resist the lure of your credit cards and store cards, the best option may be to cut them up or as a last resort, to close the accounts. 

Build don’t consume

If we want to be debt savvy, we must use debt to build and not to consume. This simply means consumable items like clothing, food, day-to-day expenses, etc. should not be bought using debt. Using consumer debt creates a reliance on debt and the vicious cycle of debt becomes harder to escape. 

There is always help available to you if you are feeling overindebted and overwhelmed. Talk to your creditors honestly about your financial situation and seek support from them to get back on your feet. A financial coach or financial advisor is also a good resource for objective advice on overindebtedness. 

Happy money! Happy life!

If you want to get in touch with Money Relations, you can reach them at this email address:info@moneyrelations.co.za 

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Money Relations – We are a personal financial coaching business.