Some people don’t comprehend how bad debt is until they find themselves in an unpleasant situation – one where you can’t see where your money is going because you have so many debts to pay. Sadly, financial literacy, handling credit and debt isn’t something that’s taught in school. And, unless you have parents who instilled financial literacy in you; how to spend money, save and stay out of debt, it’s hard for you not to fall into the debt trap.
Be it student loans, store accounts, credit cards, or that high monthly instalment you have on a car. All those bills put a toll on your health, so tackle it now before it starts affecting other parts of your life. Did you know that worrying about debt can trigger stress which can lead to severe mental health issues? Well, it does. And this is why having a debt-free life has so many benefits.
Since you’re reading this article, you’ve finally decided to take a stand and tackle your debt. And, that’s the first step many people don’t take. So many individuals stay in the same situation because it seems too difficult to come out of. But, always keep in mind that it’s better to deal with debt issues when you’re in your 20’s. These lessons will teach you how to handle money and credit so that you can make wiser choices from now on.
Know how much debt you have
One of the hardest parts of being on your debt-free journey is sitting down with yourself and calculating how much debt you have. It’s hard to look at where all your money is going, and the mistakes you’ve made in the past that got you to this point. But, it needs to be done. Knowing how much debt you still have to pay is the first step in your debt repayment plan.
Rank your debt based on the importance
Now that you know how much debt you have, it’s time to determine which one you’ll pay up first. When doing this, keep the balance, interest and minimum payment in mind. There are two popular debt repayment plans; the avalanche debt payoff method and the snowball debt payoff method.
- Debt avalanche is paying more on the debt with the most interest while paying a minimum payment on all your other debt. This plan will ensure you save a lot of money over time because you’re tackling the interest and still paying off your debt.
- Debt snowball is great for those who need some momentum. This method requires you to pay off all your small debts first, then work your way up to the larger amounts. Those quick wins can make a daunting experience more worthwhile, giving you the motivation to tackle your larger debts.
Take it one step at a time
When you’re trying to become debt-free, you’ll want to tackle everything at once. But, that will cause you to burn out faster. So, it’s advised that you concentrate on one debt repayment at a time. If you try and pay everything at once, it may seem like you aren’t moving forward. Whereas if you concentrate on repaying one debt, then you’re guaranteed to pay it off faster because you’re paying more money on the actual debt rather than on only covering the interest. Once you’ve settled on debt, you can move on to another and add the money you’d paid to your previous debt to this new one.
Find ways to make extra income
You can use the extra income to help pay down your debt. So, between finding a second job, getting a raise or winning a large payout from fixed-odds betting, you need to put that money towards your debt. Keep in mind that should you decide to enter and bet on the lottery winning odds; it does not mean you should rely on gambling to make ends meet.
This is just a helpful piece of additional financial advice on debt repayments. Now, you may have never considered it, or you may be wondering how to bet online in South Africa, well, there are websites where you can enter the lotto in South Africa. Other alternatives to making extra money like selling items or taking a part-time job to cover the additional costs.
Cut back the cost on your expenses
When you’re young and working, you’ll be tempted to splurging from time to time. Well, to continue on your debt-free journey and to ensure you never go back, you need to make lifestyle changes. Yes, it may be hard, but it’s important to practise living within your means. Meaning you’ll need to have a strict budget, save money, put more money into debt and cut back on your wants. So, track your spending and see where you need to cut back. It may be that you need to cut back on the amount of money you spend on clothing, makeup, or going out.
Build your savings
A sustainable way to ensure you stay out of debt in the future is by starting a savings account. Now you may be wondering why you need to save money when you have debt to pay. Well, having a safety net will come in handy when there’s an emergency rather than using your credit card. Whether it is a car bill or any emergency, at least you know you have a buffer rather than falling back into the credit card trap. Here are a few money-saving tips:
- Automate your savings.
- Start with a low amount; then once you’ve settled all your debts, you can increase your amount.
- Have a coin jar and start saving your spare change.
- Unsubscribe from marketing emails to avoid any impulse spurging.
- Always try and find free activities.
- Bring lunch from home rather than buying takeaways.
Monitor your credit score
As mentioned early, debt can make you feel low. But, you need to track your progress, and one way of doing that is by checking your score. Because when you start paying off your debt, your credit score will improve. Small wins, for example, seeing your score improve, will give you that extra push to tackle your debt and remind you why you’re doing this. Although you won’t be getting into any more debt, having a good credit score is good. It ensures you’re able to get an additional line of credit in the future for when you wish to purchase a vehicle or apply for a bond for your new home in the future.
Are you ready to become debt-free?
Having debt brings up many feelings. Feelings of sadness, anxiety, denial, shame and anger and that’s perfectly normal. Especially in your twenties and you’re only just finding yourself. But, the bright side of the situation you’re in is that there is a way out. Just make sure you own up and be responsible, pay on time, track your progress and more importantly get the support you need. Confide in a friend or family member that you trust about your money issues. Because having someone to talk to when you feel like giving up is the best way to handle your debt. And, during this process, don’t forget to celebrate even the smallest wins, because they are taking you one step close to your debt-free life.