How to get rid of your debt

How to get rid of your debt is a question consumers ask regularly as most of them are severely indebted and would like to escape the debt trap.

Middle income consumers spend on average 30% of their income on unsecured credit and 35% on secured credit, with little left over for the rest of the month.

TransUnion’s ongoing Consumer Pulse study shows that more than half of South African households (55%) are still feeling the effects of the pandemic on their finances, with 85% ‘highly concerned’ about their ability to pay their bills and loans, including personal loans, mashonisa (informal and/or unregistered credit providers) loans, private student loans and retail and clothing store accounts, says Kriben Reddy, head of consumer at TransUnion.

Consumer tips about debt

He has the following tips for consumers:

• Budget, budget, budget. The only way to get on top of your finances and avoid overspending is to create an effective budget. It does not have to be complicated.
• Save something for a rainy day. Try to put aside a portion of your salary to pay for any unexpected financial crises, such as health emergencies or a major repair on your car or a household appliance. This way you will avoid being forced to take on expensive credit to deal with unexpected expenses.
• Pay down your debts. Prioritise your debts and if you can afford to over-pay, start with the most expensive debts first. If you can, pay more than the minimum balance owing each month, or you will end up paying more interest than you have to.
• If you will battle to make all your payments, speak to your lenders and restructure your loan repayments. Once you default on a payment, it affects your credit score negatively and will hurt your chances of getting credit in the future.
• Get your latest credit report which lists your current credit accounts, including credit cards, home, car and student loans. You can get your annual free credit report from TransUnion here. Check your report for any mistakes, which might affect your credit score. Once you know your score, you can start taking steps to improve it.
• Change your spending habits and manage your exposure to credit carefully. Make sure you pay off the full balance owing on your credit card every month. And if you want that fancy new big-screen TV, save up for it.

ALSO READ: Proper budgeting can save you from financial ruin – here’s how

Look after your home loan

Tej Desai, CEO of Alefbet Collections & Recoveries, also has these tips to get rid of your debt:

• Get on the front foot and engage proactively with your creditors if you are at any risk of defaulting on your debt repayments.   
• As you pay off one debt or credit arrangement, divert the money you were already used to paying to top up your next repayment, which means you will significantly reduce your term and interest.
• Do not use your home loan equity to consolidate your debt because you could end up paying more interest.
• Think very carefully about debt review as this will block you from getting any new credit and you cannot exit the process until you have settled all your debts.
• Take a good look at your spending habits and avoid those that lead you into unnecessary and impulsive spending traps.
• If you are facing financial difficulties as a result of retrenchment, check whether you have credit insurance on some of your loans, retail accounts and credit cards which are there to protect you if you are retrenched and unable to service your debt.

ALSO READ: Consumers spending ‘dangerously high’ portion of income on debt