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Here's how to dial down your debt

Published on: 29 February 2016

Here's how to dial down your debt

Between the rapidly sliding Rand, widespread water shortages and a significant interest rate hike, South Africans have had a tough year on the financial front. With the cost of living rising far more rapidly than salaries, debt has become a significant burden for local consumers, with studies suggesting that up to 75% of all monthly income is currently owed to creditors.

As a result, many of us have been forced to revisit our financial goals for 2016, foregoing those overseas holidays or kitchen renovations in favour of paying off credit cards and home loans.

But whilst the economic outlook might be bleak, your bank balance needn’t follow suit. In fact, with a bit of planning, a touch of creativity and a strong sense of commitment to your own financial health, you can ensure you remain in the black at the end of every month, and start making plans to tackle that bucket list of yours.

Here are a few tips to get you started on your path to financial well-being:

Don’t treat your budget like a crash diet

  • Staying indoors and living on tinned tuna for a month might have a short-term effect on your financial fortunes, but, much like crash diets, this approach simply isn’t sustainable. Eventually you’re going to reach for that doughnut. As such, it’s important that you’re realistic about your budget, cutting out some of the non-essentials, but still allowing yourself a small splurge every now and then. Good budgeting, like good dieting, is all about moderation – cut back, but don’t starve yourself into developing new bad habits.

Set clear goals

  • Are you looking to plan for a comfortable retirement? Is your child’s education your primary priority? Is a round-the-world holiday something you simply have to do before you die? Before you establish your budget, it’s important that you define what it is you’re saving for, assigning clear and measurable outcomes to each. By understanding what you’re saving for, rather than simply saving for saving’s sake, you’ll be far likelier to succeed in your budgeting endeavours.

Give credit where it’s due

  • Before you book that villa on the Amalfi coast or splurge on a state-of-the-art entertainment system, simply ask yourself one question: can you afford this right now? If the answer is no, then you might want to reconsider your purchase. In this day and age, just about everyone has a credit card, meaning extravagant buys are easy to make, but far more difficult to pay off. So whilst using a credit card does present its own set of financial benefits, they’re only of use to you if you have the funds to pay the amount off immediately. That Mediterranean tan will fade quickly, but the financial burden won’t go away in a hurry, so make sure to weigh this up before you blithely swipe away.

Cash is king

  • Whilst carrying around cash might seem like an unnecessary burden when plastic can do the job just as well, it can in fact have an enormous impact on your financial health. By drawing out your weekly budget in cold, hard cash, you’ll be able to keep tabs on your spending without counting every penny, and find yourself thinking twice before making impulse purchases. After all, parting with a large wad of notes is a lot more difficult than making a thoughtless swipe, particularly if it directly impacts your living conditions for the rest of the week.

Prioritise pay-offs

  • Sitting with numerous credit cards and store accounts and overwhelmed by the prospect of paying them all off? The key is to take things one step at a time. Rather than paying the minimum amount each month – something that can incur huge interest – rather pick the card or account with the highest interest rate, and pay off as much as you can on this until you’ve paid it off in full. Once you’ve settled that debt, you can turn your attention to the next one, gradually working your way out of debt and into solvency in the process.

Buy in bulk

  • Whether you’re looking to cut down on your weekly grocery bill or trim down the premiums on your monthly insurance policies, consider applying a ‘more is less’ approach to your budgeting. Rather than shelling out smaller amounts more regularly (something many cautious budgeters do despite the long-term ramifications), opt instead to use economies of scale to your advantage.

This is an especially effective cost saving tactic when it comes to insurance. Find an insurer that can offer significant premium reductions for customers opting to consolidate policies, thereby freeing up funds to put away for a rainy day.