There’s nothing worse than feeling overwhelmed by debt. It is a harrowing experience which can often seem to have no end.
But there is a solution. It is never quick or easy, but you can get out of the debt mire.
Don’t accept debt as a way of life, take control of your money and secure your financial future.
Our six step debt diet will whip your finances into shape. Instead of cutting out carbs we want you to cut out credit. Instead of getting rid of kilos you’ll get rid of unwanted debt. Your budget is your training program, stick to it and you’ll be on your way to a whole new you.
STEP ONE: Face reality
Many people ignore their debt problems until it’s too late. The sooner you act, the better off you will be. Here’s a quick quiz. Are you;
- Spending more than you earn each month and regularly dipping into savings
- Putting day-to-day expenses on credit because you have no money
- Only able to afford the minimum payment on the monthly credit card bill
- Not prepared for unexpected expenses that crop up, like house and car repairs
- Receiving legal notices in the mail
- Taking menacing phone calls chasing payment
- Enduring relationship instability such as marriage or relationship breakdown
- Adopting bad lifestyle habits such as increased drinking, smoking and gambling
Be honest. These are all telltale signs of financial distress and a warning you must act now to resolve it. The worst thing you can do is ignore your debt problems until it’s too late, hoping things will work out for the best and your creditors won’t notice.
STEP TWO: Ask for help
If you’re in trouble, talk about it. Credit card companies and financial institutions will be much more lenient if they know you’re trying to tackle the problem.
Talk to them about a payment program to help you manage your debt. Ask if you can reduce or postpone some repayments, or pay less interest while you get on track.
STEP THREE: Control your spending
For the next month write down everything you spend and then examine what you’ve done. You will be amazed, and maybe a little horrified, at where your money has gone but I bet you’ll think twice in future.
Start living within your means so you don’t go further into debt. From now on use cash for everyday expenses like groceries, clothes and entertainment so you only spend what you have. Resist impulse buys and save up for big purchases.
If you’re going to struggle with the temptation of credit, get rid of it. Replace your credit card with a debit credit card. It allows you to purchase things online or over the phone like a regular credit card but only uses your own money… so you can’t go further into debt.
Kochie’s 8 step debt checklist
STEP FOUR: Stick to a budget
Balance your family budget and develop a debt reduction plan. The fastest way to pay off what you owe is to make extra repayments. Look at your budget and work out the maximum you can afford to pay off your debts every month.
Each pay period set aside money to cover your basic expenses such as food, transport, utilities, and rent or mortgage payments. Also contribute to an emergency account to cover any unexpected bills. Use the all the cash left over to pay down debts like your credit card bill.
If you’re not making much of dent in your overall debt you have to increase your income. Get a second or third job in the evenings or on the weekend until your debts have been cleared. Make sure all the extra money your earn goes towards paying them off.
STEP FIVE: Don’t fall in to the minimum trap
The monthly credit card bill looks horrific, but then you take comfort in the much smaller minimum balance owed. Big mistake. It will take years to eliminate your debts if you only make minimum repayments. Your credit card provider will charge you interest on the rest of your bill, adding to your overall debt.
STEP SIX: Pay off your most expensive debt first
It’s common sense, but pay off the debt with the highest interest rate first. Credit cards are charging up to 20 per cent interest, so focus on that debt to start with, then look at personal loans, which will be costing at least 10 per cent interest.
Don’t even think about saving or investing until you’ve paid off your bad debts. There’s no point playing the share market or investing in a managed fund when you’re being charged 20 per cent interest on your credit card debt.
Your home loan is probably your cheapest debt, at around 4 per cent. Borrowing to buy a home or invest in quality shares or property is generally considered to be good debt, and not as much of a concern.
If you have debt, you should have no savings. It should all go in to the credit cards or loans instead.
Think about it logically. Why have savings earning 3 per cent (at best) when you’re paying 4-18 per cent interest on home loans and outstanding credit card balances?