How to create a debt repayment schedule and stick to it

These days it is important to be able to create a debt repayment schedule and stick to it with the rising cost of living, made even worse by substantial fuel hikes and soaring interest rates.

Considering the increasing household debt-income ratio, consumers will undoubtedly benefit from taking a critical look at their spending habits.

Now is the time to develop a routine that involves healthy financial habits. The best financial practice is to pay with saved cash, but this is not always practical and using credit can be a convenient way to afford larger purchases and smooth cash flows.

“Managing credit obligations is one of the most important budgeting practices and involves putting together a debt repayment schedule that will allow you to keep your credit spend and repayments in check, even in times of financial difficulty,” says Marine van Brakel, chief operations officer at RCS.

Holistic budgeting is about taking practical steps to avoid falling into the vicious cycle of over-indebtedness. She says while credit may provide much-needed relief in times of financial constraint, ensuring good credit health is the cornerstone of ensuring financial wellness.

“Some may find the concept of drawing up a repayment schedule daunting, but all it takes is a few simple steps, some strategic thinking and self-discipline. The good news is that anyone can do it.”

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Start with a list of debts

Van Brakel says consumers can start with the all-important list of all your outstanding and upcoming debts.

“The list should include the amount of money owing as well as the current interest rate being charged on that credit by each respective credit provider. It may be useful to list these debts in a table format, arranging them in order of size, starting with the smallest debts first.”

The list should include all debts, including money owed to family and friends, as well as more formalised forms of debt such as student loans, mortgages, personal loans and store credit.

“We are often surprised by how many South Africans do not know how much interest they are being charged on their credit facilities. The simple task of enquiring about what the applicable interest rates are and getting it down on paper can be immensely empowering.”

She says having your list of debts in a consolidated, tangible format will help to expel some of the anxiety that may be associated with being in debt and give you a solid foundation for a realistic plan of action. 

Van Brakel says it is also important to be consistent about making payments. Once the list of debts is ready, she recommends you start by paying off the smallest debts first.

“These small wins will help you feel more in control of your financial wellbeing and give you a sense of accomplishment as you work your way to paying off your larger outstanding amounts.”

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Alternative approach

An alternative approach would be to make consistent payments against the credit facilities that have the highest interest rates.

This will help you avoid accumulating unnecessary large amounts of interest over time.

“The rule of thumb when paying off debts is to always pay the minimum amount due, but where possible, pay more than the required instalment.”

She says it is also important to review how you spend your income before formulating a repayment schedule. You need measures that will help you manage your cashflow more effectively.

“This can be done by finding ways to earn extra income or see where you can reduce your monthly expenses.”

A good financial practice is to allocate any extra income in the form of tax rebates and bonuses to pay off your debt, rather than spending it on nice-to-haves.

“Think of any extra income you may earn or any unplanned income in the form of gifts as being ‘debt deposits.’ Many South Africans fall prey to the debt cycle by planning how they will spend their bonuses and tax rebates before the money enters their bank accounts.”

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Use extra income to pay off debt

Van Brakel says instead, make a conscious decision that any extra income will be allocated to debt repayment for at least one year.

“Remind yourself that this is a short-term solution that will change in the long term and will have a positive impact on your financial wellbeing in the future.”

The next step is to focus on one debt at a time, while trying to pay slightly above the minimum amount on all your debts consistently every month. Trying to tackle all the debts on the list at the same time can be overwhelming, but when focusing on one debt at a time, you can manage that specific debt more effectively.

“With credit, less is more. Each line of credit comes with a cost so it is important to keep credit to a minimum. Using a debt repayment schedule to manage debt may be a simple task that can make the world of difference.”

At first the list of debts may seem insurmountable but as you manage these amounts one debt at a time, you gain momentum. Your confidence will also grow and you will succeed at minimising the financial pressure you may feel.

Taking these proactive steps can have an overwhelmingly positive impact on your self-esteem and peace of mind.”