Debt is a major problem in South Africa, especially as the festive season approaches and people spend more money on holidays, Christmas gifts and online shopping. South African consumers can often spiral into debt, this can often be the result of overspending, lack of financial discipline, or just bad luck. Whatever the cause, it can have serious consequences on your financial well-being and it’s best to sort it out before the start of the new year.  

Debt management is an effective way to get out of debt and start living a debt-free life. There are many different ways to manage your debt and they all depend on the amount you owe and your personal situation. Here are 10 tips that will help you manage your debt more effectively:

1. Keep track of your debt

If you’ve found yourself in a financial pickle, the best starting point is to make a list of all your debt. This may seem rudimentary, but it’s a vital step in getting your debts in order. It also gives you a much better understanding of how much you owe each of the creditors. If you’d prefer pen & paper that’s fine, but if you’d like to keep track of it in a place you can always find it, put together an excel spreadsheet. Use this sheet to document any and all debt, it’s not just about tallying how much owe and to whom, it’s also about taking note of the terms and conditions of each loan/credit line. The terms & conditions may have an effect on how much you owe currently or in the future, especially if there is a change in interest rates. Here is an example of the sub-headings to include in the spreadsheet:

• Name of debtor/debt account
• Type of debt e.g. credit card, student loan
• Remaining balance – how much you still owe
• Interest rate
• The length/payment terms
• Minimum monthly payment owed

Debts also don’t always need to be official agreements, if you owe a friend or family member money add that to the spreadsheet too.

Common types of debt in South Africa:

• Credit card bills
• Personal loan
• Home loan
• Vehicle finance
• Small business loan
• Store accounts e.g. a Woolworths or Edgars account
• Petrol card

2. Create a budget and track expenses

Now that you’ve put together a spreadsheet of all debts owed, you need to look at other ways to pay off debts more quickly. The best way to start paying off your debts is to create a budget for the new year. This budget should outline all of your debts, your expenses and your salary plus additional investments. The idea of a budget is to monitor how much you are earning against all your spending, and why you are spending money on those items. A budget also assists you in becoming more familiar with your income and expenses as well as ways you can eliminate or reduce unnecessary costs. A budget essentially gives you a central location to keep track of all your expenses, so you can cut back on spending and put money aside to pay off your debts. If you’re looking for budgeting tools to help you along your way, there are a few helpful budgeting apps like Mint & Goodbudget.

3. Stay away from taking on more debt

The golden rule of debt management is to not take on more debt when you are trying to sort out your current debts. Since you are working towards paying off your debt, it’s possibly the worst idea to apply for more debt. New debt can also mean you are making unnecessary purchases when you should be focusing on managing your current debt. Steer clear of credit card companies and lenders who are offering you “deals” on interest rates, or extending your credit limit.

4. Prioritise your debts

Now that you have your budget in place, you aren’t taking out more debt and you’ve put together a sheet of all your debts. It’s now time to prioritise these debts and make sure to rank them based on each debt’s interest rates and minimum payments. It’s best to focus on paying off the highest-interest debts in full first, at the same time ensuring you still make the minimum payments for your other debts. By paying off the highest-interest debts first, you’ll owe less money in the long run. If you are unsure how personal loan interest rates are calculated, we’ve put together a guide to help you along the way.

5. Make sure to pay off your bills & debts on time

Put together a calendar so you know when you’ll need to pay off each of your debts. If possible try and automate this at a specific time each month so you know that this money is untouchable. Carrying over debt month on month can have a seriously negative impact on your credit score and overall ability to pay off all your debts. Make sure to pay all your credit card bills, loan repayments, utility bills, and store accounts on time each month. Firstly it’s one of the most important factors in determining your credit score, as it shows lenders what your ability to pay back a loan looks like. If you pay off these credit amounts on time each month it will also mean you avoid late fees and other penalties that can often add to your overall debt burden. It’s also crucial for the next time you apply for a line of credit as it shows lenders you are responsible and capable of managing your credit.

6. Cut down on your credit cards & store accounts

If you can close some store accounts and credit cards and are able to pay off the debt in full, it’s a good idea to do a credit card & store account audit. Closing these accounts is beneficial for your current debt situation as they can reduce your overall credit utilisation and avoid further accumulating more debt. The added benefit of closing your credit card account is that you are no longer tempted to use it to make additional purchases. Make sure that the credit cards you have closed are the ones with the highest interest rates.

7. Think about debt consolidation

Feeling like you are struggling to keep your head above water with all the debt piling up every month. Are you still feeling like you can’t keep track of all your debt, and are unsure how to manage it properly? Debt consolidation is the process of using a loan to pay off other debts. Although people are often frightened by the idea of taking out more debt, there are good and bad sides to this loan repayment model. Debt consolidation serves as a lifeguard between drowning in debt and swimming in it. Debt consolidation gathers all the user’s debt and allows him/her to pay one large amount rather than many amounts.

It’s a pretty easy process, you simply add together all amounts you owe to various lenders, and move the total amount to one debt consolidation lender. This lender takes on all the other debt and the risk you had with each of the other lenders. You will thus have one monthly instalment with one interest rate, and instead of paying countless individual lenders, you’ll only click once to pay. This makes your repayments easier to manage – BUT, it does not make them vanish into thin air.

So is a debt consolidation loan the answer to bad debt? It could be. The reason this type of loan can be helpful to you is that it can solve three of your worst obstacles:

• High-interest rates
• High monthly repayments
• Possible confusion because of too many bills to manage

It’s always a good idea to shop around for a low-interest debt consolidation loan, at Fincheck we’ve done the groundwork for you by making it much easier to compare loans from different debt consolidation lenders.

8. Negotiate a better repayment plan

Something South African consumers tend to forget is that lenders are still people at the end of the day. This means that there is always someone you can talk to,  and sometimes speaking directly to the creditors is the best way to negotiate your repayment plan and interest rate. Explain to them your financial situation is not in good condition and that you are trying your best to pay off the credit. If you are lucky they may be willing to lower your interest rate and create a more manageable payment plan tailored to your needs.

9. Start a side hustle to pay off debts

In an ideal world, you don’t want to be ever spending more than you earn, the best financial situation to be in is to always have money left over at the end of the day that can go towards your savings and paying off your debts. If you can try and have a conversation with your bosses about a salary increase based on your increased productivity and improved performance. If they are unable to offer you a salary increase at this stage, a side hustle is your next best bet. To get started with supplementing your current income, you need to think about how exactly you are going to make additional money. Do you have a passion that you can monetise? Is there a business that you’ve always wanted to start but never had the opportunity to? Or do you have plenty of furniture and appliances that you no longer use or are taking up too much space at home?

There are plenty of ways you can make extra money and it’s best to use your spare time after work to do this.

10. Stay out of the debt trap

Yay! You’ve finally reached a place where your debts look much healthier and you can pay them all off much more easily. Once you’ve reduced your balances, the most vital debt management tip is to remember to not let it happen again. There is nothing worse than finally feeling financially stable and then you start racking up the debt again. Don’t incur more debt at all costs; consider phasing out even more of your credit cards. There are some debts however that are good debts and some that are bad debts, it’s best to know the difference before you consider taking out any more debt – we’ve put together a guide on good vs bad debt to help you out.

If you’re still in a bit of a mess when it comes to your credit health, possibly because of a bad credit score or because you are still spiralling into debt, our Fincheck Academy Credit Health course covers everything you need to know.