How to escape the debt trap

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These 4 people managed to successfully deal with their debt and improve their financial health. Here’s what you can learn from them.

According to research firm Statista, the 2018 household debt to income ratio in South Africa was 72%. This means that a large majority of South Africans who are in debt cannot afford to repay it.

If you’re struggling to manage your debt, there are ways to work through it. These are the 5 most important things to keep in mind:

Paying off debt takes discipline, planning and patience, but it is possible. This is how these South Africans came up with a plan:

*Amelia Abrahams: Create a payment plan

After my divorce, I used different store accounts and credit cards to take care of my kids. These are some of the things I did to manage my debt:

  • I had to pay off multiple store accounts, so I used my credit card** to pay the balances. This lowered the interest rates and prevented my accounts from being flagged by the stores and credit bureau.
  • I discussed a new payment plan with my bank that suited my budget. This allowed me to comfortably pay off the debt on the credit card.
  • I created a budget so that I wouldn’t spend unnecessary money on activities or things we didn’t need.

It took me about 9 years to clear all my debt.

**Disclaimer: Financial adviser Terence Tobin advises against using debt to pay off other debt. It is not recommended that you use this as a strategy. Rather speak to a financial adviser about alternative options.

*Veronica Howard: Make small sacrifices for big change

I gave birth to my daughter at a private hospital, but my medical aid provider didn’t cover all the costs. With my 50%-less maternity salary, I couldn’t afford to repay all the outstanding bills. This is how I managed:

  • I called each entity and arranged that I start paying them back when I was once again receiving my full salary.
  • I took my lunch hour each day to plan my budget.
  • I set aside R800 each month for payments (cutting out unnecessary luxuries).
  • I kept track of everything by writing it down in a notebook.
  • After every payment, I forwarded each entity’s respective proof of payment to them. (This way they could stop calling to check in.)

It took me about 8 months to clear my debt and I felt stress-free and so relieved thereafter.

*Mohammed Barden: Spend less to save more

I bought a car through a bank in 2017 but found myself unemployed a year after the purchase. Eventually, the car was repossessed and auctioned off, but I still had R58,000 to pay. Thankfully, I got a new job, and here’s how I managed:

  • I moved in with my mom to save money on rent, water and electricity.
  • I made a list of my needs, which included living expenses like food and contributing to rent, water and electricity.
  • I listed things I didn’t need, which included store accounts, new clothes and a new car, to remind myself not to waste money.
  • I called the bank and explained my situation. They said I could start paying what I could afford.

It’s one year later now and I’ve managed to pay off the bulk of what I owe while still saving every month.

*Natasha White: Live within your means

My mom is a single parent and couldn’t afford my university fees, so I took out a student loan in 2012. Halfway through my studies, in 2013, the bank said I didn’t qualify for another year so I had to quit studying to start paying back the interest. And once I was employed permanently, I had to start repaying the loan. This is how we managed:

  • Prior to having to pay back the debt, I had already taken on part-time and odd jobs during my studies so that I had an income from multiple streams. I used this to contribute to household expenses as well as pay off the loan.
  • We lived frugally and only bought what was necessary.
  • Once I got my first full-time job, even though I was earning more, I continued to work with a smaller budget so I could pay the loan off faster.

We did this for about 5 years in total and I managed to pay the loan off completely in 2018. I was also offered an ongoing bursary in 2014, finished my studies at a different institution and graduated in 2017.

*Names have been changed

For more financial advice, read these helpful articles:

The information is shared on condition that readers will make their own determination, including seeking advice from a professional. E&OE.

References:

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