How did the debt originate?
This is very important since we do not want to work hard to get out of debt only to find ourselves back in the same spot a few months or years later. This can turn into a vicious cycle. So, to avoid the downward spiral we must start at the beginning and address the root cause of the problem.
Since the cause is usually seated in one of our financial blind spots, it is best to look for the answer in partnership with your certified financial planner. The process will help to look at the origin objectively, without judging. Judgement can cause one to move into defensive mode, justifying the debt problem, in stead of finding the blind spot and changing the behaviour that caused the problem to begin with.
Smash your budget to the bone and get rid of all the unnecessaries, it will not affect your happiness, but will give you a sense of relief. Really taking an in depth look at your budget, ruthlessly getting rid of the “nice to have’s” and looking for cheaper options for the “absolutely must have’s” will also bring a sense of control and help to alleviate that feeling of hopelessness.
To do this, we have to take a hard look at the difference between fact and opinion. Hard facts must dictate your new budget. Someone recently made the comment: “My doctor told me to eat less fruit, but if I have to stop eating banana’s I will die.” That is an opinion NOT a fact. So look at your self-talk whilst re-doing your budget. You may not like mowing your own lawn or giving up a TV channel, but it is definitely possible to do so.
Do not cut items such as your medical aid, insurance or retirement savings! In the long run this will be more costly than you can afford. If you really have no other option, consider changing your medical plan, but do not cancel your medical aid al together.
Pay off debt
Pay off your debt by adding any extra cash that you can afford, to the smallest outstanding amount with the highest interest rate. Once your first target has been settled in full, allocate the full premium amount of that account to the next smallest debt and settle that. You will be surprised to see how quickly this can make a difference.
Some banks offer the opportunity to consolidate debt. This will definitely make administration easier and give you a feeling of control if you are no longer drowning in a number of small accounts. Just be careful of the interest rate offered for the consolidation and ensure that you will not end up paying more than you would have done.
Once your credit card has been taken care of, consider putting it in the freezer if that is what it takes to help you master. I have to admit that have done this in my younger days. I went all out and froze my credit card in the middle of a 5l ice cream container – which of course I had no business buying in the first place since we were a family of three at that stage. The time it takes to unfreeze the card prevented me from making quite a few unconsidered purchased and helped establish a much healthier spending pattern.
Evaluate the affordability of your home – can you really afford it? Remember it’s a lifestyle asset and not an investment. It will never provide and income and will always remain an expense.
One car per family?
This can also be one of those “fact or meaning” questions. It is certainly more convenient to have to cars, but will you be able to get along with one car especially if you have the privilege of working from home. Consider car a car pool. Even if you contribute towards fuel, you will save on services, licence fees and insurance.
Understand every debit order that’s going off your account – cancel the nonsense as it all adds up. On the other hand, if you can pay an account via debit order, do that as you will not have to go into the mall and be tempted to buy something on the account while you are there.
While we are on the subject of temptation, it may be easier to buy online and keep out of the shops, but I really recommend that you use a shopping list when ordering online as it is just too easy to click something into your basket and before you know it, your credit card is up to the limit again.
Be thankful that you won’t be putting any overseas holidays on your credit card – embrace the “local is lekker” mindset. At the risk of sounding trite: enjoy the little things. You will be surprised how much there is to enjoy if you set your mind to it.
Talk about it
Do not suffer in silence. This is not something to be ashamed of and something to hide. You find yourself in this situation and you have to get out of it. The more we talk about our financial situation, the less weird it will become. Look at the reaction people have when you mention you have gained a few extra kilos over the festive season. Everybody is ready to offer the latest diet tips and will flood your inbox with healthy recipes. But just mention a tight budget and an uncomfortable silence downs inevitably followed by “so how about this weather were having”. This needs to change and the more we talk about money, sharing our money stories and supporting each other the faster this much needed change will come.
Remember, you are by no means the first person to struggle with debt. You are not alone and just having a sympathetic ear will help you relax and look at the issue from a new perspective.
This includes approaching your bank when you are not able to make a payment on time. Do not wait for them to approach you when you are in arrears. Be pro-active and seek help before things get out of hand. Making use of your bank’s debt relief process may mean that you are able to avoid getting a bad credit record and have more control over the manner in which your debt problems are delt with.
Studies have shown that debt can impact negatively on your health by raising blood pressure, increasing your stress levels sometimes even leading to depression. Your sleep patterns may be disturbed, influencing your immune system.