How to escape the debt trap

Reading time: ±4 min.

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:


How to commit to your financial goals

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How to take control of your financial triggers

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Do you have a money disorder?

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4 ways to relieve money stress

Read time: ±1:40 min.

Money may not be able to buy you happiness, but it can help secure a comfortable future. Read our tips.

Financial stress negatively impacts nearly every facet of your life, affecting concentration and focus, your work performance and family responsibilities, which can lead to problems in relationships. Fortunately, if you make wise financial decisions, money can bring relief.

Here are 4 ways to put your money to good use:

1. Get value for your money

Work on significantly reducing your bills and getting more value for the money you have. For example, this could mean paying your debt and not taking on more credit. This is important as the less debt you have, the more you can save for emergencies and prevent the debt cycle.

2. Prioritise saving

Saving ensures you have an emergency fund or a safety net for unforeseen events. It also enables a better future, creating the possibility of enjoying financial security in your golden years. Ideally, 10% of your monthly earnings should go towards savings. If you can’t afford 10%, commit to an amount that is more realistic. In some cases, 10% can be achieved if you reassess your expenses.

3. Spend wisely

While splurging can give you temporary happiness, carefully planning your finances will ensure peace of mind. Set up a monthly or weekly budget and stick to it as far as possible. Include your expenses, debit orders, savings allocation and a portion for recreational spending and entertainment.

4. Pay it forward when you can

Helping others can make you happier. When you can afford to, donate a portion of your income to those in need. You can either give money or you can buy essential items, such as blankets, perishable foods, clothing and soap, and donate those instead.

Remember, your financial coach is ready to help with confidential and professional financial coaching and support, over the phone or electronically.

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


3 ways to reshape your money mindset

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How to become more mindful about money

Read time: ±1:50 min.

Have you ever reached into your bowl of chips while watching a movie only to find you had eaten them all? Being mindful about your money prevents the same thing happening with your finances…

Mindfulness can be defined as being fully aware of and immersed in moment-to-moment experiences. Money mindfulness is the act of being deliberate about every cent you spend, earn and save. These 3 steps can help you become more aware of your spending habits, uncover your subconscious feelings towards money and guide you towards better budgeting.

1. Become aware of your beliefs about money

Pay attention to the motivation behind your spending. Do you feel resentfulness, loss, anxiety? The way you feel about money has the potential to impact your decisions. For example, you may not have an emergency fund because you believe you don’t have much money to save, or you may feel anxious every time you buy something because you don’t budget for specific purchases.

2. Take notes

Becoming more mindful of your money by tracking your spending in a financial app on your phone or in a money journal can be a life-changing practice. Write down where every cent is going to get an idea of your spending habits. This will help you figure out if you’re overspending or if you’re saving enough. With a budget that makes provision for consistent savings, it’s easier to make the right decisions day by day and to cultivate new habits that contribute to your financial success.

3. Take control

Once you’re aware of your financial habits, take control of your future by making changes. Cultivate better spending habits by:

  • Reducing unnecessary expenses
  • Sticking to a budget
  • Having an emergency fund
  • Making provision for retirement

For example, if you’ve found that you’ve been overspending on unnecessary expenses, such as a subscription you aren’t using, save that money instead. And before splurging on an item you may not need, ask yourself if you’ll regret it later.

Remember, your financial coach can help you and is ready to provide assistance.

For confidential assistance, contact Life EHS; SMS your name to 31581 and the Care Centre will call you back.

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


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