I don’t have to tell you that debt brings with it a heavy burden that includes not only financial problems but emotional burdens, psychological and physical stress, family problems and a diminished ability to enjoy life.
I have seen and heard of the worst things that can happen because of debt problems – anything from anxiety attacks, anger, shame, isolation, divorce, murder and some people threatening to commit suicide.
I want to propose to South Africans, that we make 2017 the beginning of a “debt free dream journey”. Those who are willing to commit to this, are to eat, sleep, dream and be fired up to hit the road to #DebtFreeDream land and actually become debt free!
Like all diets, the debt detox requires a focused effort, commitment and determination. It is only those who feel that they are sick and tired of being in debt and broke who will make an effort to make this happen. I hope you are in that number.
Decide that 2017 is going to be different. You are going to plan differently and act differently so that everything can be different.
There are a few choices you can make depending on your financial situation. Before you choose your debt detox method, however, you need to drum into your head that the problem of debt has not been that you didn’t have enough money. Your problem has been mainly about your lack of discipline. Your behavior got you into debt. So it is once again your behavior that will radically change your financial situation fast if that is what you want.
It might sound like a nightmare, but once you start, it’s much easier and less stressful than leaving your debt to grow.
Option 1: Debt review/debt counselling
If, with your salary, you are unable to pay off all your monthly debt obligations and cover your living expenses, then you need to seriously consider the debt review option. Let me explain what it is and how it works:
Debt review (also known as debt counseling or debt management) is the process that reworks your monthly debt payments into a new, affordable, consolidated repayment plan. Your new repayment plan is agreed upon by your creditors (a counselor negotiates on your behalf), regulated by the National Credit Act and authorized through a court order.
This means that the debt review process legally protects you, and your assets, against creditors who want to take legal action against you.
Once your debt review process is completed you’ll receive a clearance certificate. Your clearance certificate is sent to your creditors and the credit bureaus, and they are then required by the law to clear your credit record. So, you truly can leave your debt worries in the past and start your new beginning.
However, this process is not free. It is a service and it will cost you money. While you are in the debt review process, you will also not have any access to credit until all your debt is fully paid up. This make take years depending on the size of your loans. This is the reality of debt review and I see many people act like they were never told that credit is not allowed until debt is paid. This means no more access to credit for you – no more. No more until you’ve paid the last cent of your debt. I hope this is clear.
Putting the ‘no credit access” aside, there are benefits to the debt review process that can help you get out of debt and make your life better. Think of:
- You only pay one consolidated and affordable installment.
- Cash flow relief from your next pay cheque.
- Protection from your credit providers.
- Provide for your family’s vital living expenses.
- Cleared blacklisting at end of process
If you are interested in debt review process, you can contact www.truthaboutmoney.co.za.
Option 2: DIY debt detox
If this debt review process doesn’t suit you, there is an Option 2 to consider: a do-it-yourself debt detox! There are 5 self-made simple steps to getting out of debt. Here’s how to start:
- Stop acquiring new debt.
- Establish an emergency fund.
- Implement a debt snowball (debt reduction plan)
- Have your budget ready so you can use it to go visit your credit providers to negotiate easier payment terms
- Find a way of earning extra income
Here’s how to approach each step.
STEP 1: STOP creating new debt!!
That’s it! Don’t create any new debt. Cut up your credit cards and use monthly statements to pay as it has your account details.
This is tough. Don’t make excuses. I don’t care what other personal finance gurus say. Most will tell you shouldn’t cut them up. I say destroy them. Stop rationalizing that you need them.
- You don’t need credit cards for a ‘just in case something happens’.
- You don’t need credit cards for convenience.
- You don’t need credit cards for e-bucks and other point systems.
You don’t need credit cards at all! If you’re in debt, credit cards are a trap. They only put you deeper in debt. Later, when your debts are gone and your finances are under control, maybe then you can get a credit card. (Stop carrying one and you won’t miss carrying it)
After you destroy your cards, cancel any ‘stop orders’ coming out of your credit card. If you have a gym membership, cancel it. If you automatically renew your magazine subscriptions, clothing accounts, stop it. Cancel anything that automatically charges your credit card. Stop using credit.
Stop using your retail clothing cards too. Cut them up and do your payments using a statement for account number details. If you continue to buy more clothes on them, remember that you are increasing your debt. If you don’t believe this, try buying non-stop and see what happens.
Stop using credit, destroy the cards. Stop using credit. Stop, stop, stop!
STEP 2: Start saving for unexpected expenses/emergencies
(This step will probably take several months.)
For some, this does not make sense. Why save before paying off debt? Because if you don’t save first, you’re not going to cope with unexpected expenses. Do not tell yourself that you can keep a credit card for emergencies. Destroy your credit cards; save cash for emergencies.
How much should you save? Ideally, you’d save R2 500 to R10 000 to start. This money is for emergencies only. It is not for beer. It is not for shoes or betting lotto. It is not for air time. It is to be used when your car dies, or when you break your leg and there’s blood everywhere.
Keep this money in the bank or your stokvel club. It should not be immediately accessible. Don’t tie your emergency fund to a complicated banking scheme. Don’t sabotage your efforts by making it easy to spend the money on non-essentials either. Consider opening a Money Market account or 32 Day call account with an option for emergency withdrawal. Speak to your bank about this account.
You do this so that when an emergency arises, you can easily transfer the money to your current account. The money must be there when you need it the most but not to be spent spontaneously.
STEP 3: Start a debt snowball (debt attack strategy)
(This step may take a few years depending on your debt amount)
After you have stopped using credit, and after you have saved for an emergency fund, then attack your existing debt. Attack it with vigor. Throw whatever you can at it.
Many people say you should pay your high interest debts first. There is no question that this makes the most sense mathematically. But remember, money is not only about the numbers, but it is about emotions and psychology as well.
There are several approaches to debt elimination. Psychologically, using a debt snowball offers big payoffs, payoffs that can motivate you to further debt reduction.
Here’s the short version of debt snowballing:
- Order your debts from lowest to highest balance.
- Designate a certain amount of money to pay toward debts each month.
- Pay the minimum payment on all debts except for the one with the lowest balance.
- Throw every other money at the debt with the lowest balance.
- When that debt is gone, do not use that money for anything else. Throw all that money at the next lowest balance.
I’m a huge fan of this method. It will still take time to pay off your debts, but you can see results almost immediately.
STEP 4: Negotiate easier payment terms with your credit providers
Write up your detailed budget, clearly showing every single expense and debt that needs to be paid monthly. This will show your credit provider that you are not managing the current monthly payments. Propose your more affordable payments to credit provider and agree on new terms. Commit to sticking to those newly agreed payment terms.
Remember if you do this, you are simply saying you are happy to pay for a much longer time and extend your ‘slavery’ time. You might have to do this as you don’t have many options.
STEP 5: Earn extra income
By hook or crook, do your best to find something else to do to earn an extra income. If you can do this, you will be able to ease off pressure on cutting your living expenses budget and be able to comfortably pay your debt without stressing too much.
To sum it all up
To be honest with you, we often talk about debt detox as if it’s something that can be a 7-day process. It is not. There is no such thing as getting rid of your debt fast. The fact is, you messed up financially, and it will take you far longer to fix the damage than the time it took you to ‘swipe’. So, next time think before you spend.
It all boils down to managing your wants in life, learn to be satisfied with what you have and be disciplined about it. It is my wish and prayer that you have enough courage to love yourself more by just saving up for your next holiday. Visit www.themoneytribe.co.za. Happy 2017!