Stakeholder Member Login
10 Debt Busting Tips for 2014
The South African Reserve Bank's quarterly bulletin
found that debt levels remained high. The amount of debt owed by consumers as
part of their income was 75.6%. This means that if you earn R1
000.00, R750.00 of your income is already owed to banks or micro lenders.
The above fact is frightening especially to those who have too many
accounts to pay and not enough money to pay those accounts. Below you will find 10 debt busting tips to
reduce debt in 2014. Remember getting rid of debt is process and the first step
is acknowledging that you are over indebted.
1) Know who you owe
Many people have opened various furniture or clothing accounts because
of marketing tactics that include free vouchers, free funeral plans and so
forth. You may have filled in the application forms for certain accounts hastily
and even ticked optional extras like a benefits system or monthly magazine
which carries additional costs without even realising it. Before you know it,
you receive a letter in the mail from lawyers demanding payment even though you
have never purchased anything on account from that store. You are being charged
for optional extras. Added to that cost are heavy interest rates. Therefore, know what you are signing for and
know who you owe. Ask for a copy of all the documentation that you sign as
proof of what you have signed for. If you are uncertain, go to the relevant
clothing stores with your ID and ask them if you have an account with them.
Close that account if it is not in use. Write down the names of the
accounts that you have and keep this in a safe place.
2) Know what
You have opened an account and you see an advertisement that you can own
a new plasma television set for just R88 a month. Remember, these are just ways
to get you to buy on credit. Credit costs more than cash and you may end up
paying more than the original cost of the television. For example, a Television
set that would cost R4000 cash may end up costing you R7000 over an extended
period of time because of interest costs. Know what you owe. In the previous
top you wrote down a list of the accounts you have. Now write down the total
amounts that you owe each account for example; Edwards clothing store, R10 000.
Try not to buy more items on credit or on higher purchase until the current
accounts are paid up.
3) Work out a
You have decided that things are a bit tight and your wallet is getting
emptier, but what do you spend your money on? The best way to find out is to
draw a monthly budget or plan of how you spend your money. Keep track of your
expenses by writing down your income less your expenses. For example;
Sipho is 34 years old and works as a builder. He earns R4000 a month. He is
married and has one child who is 5 years old. Here is his budget.
R 3 000
Edwards clothing account
Take out/fast food
R 3 250
Income less Expenses = Surplus or deficit
R 3 000 – R 3 250 = -
From the exercise above, we can see that Sipho is unable to pay all his
accounts. He spends too much. For those doing a budget for the first time, it
can really scare you into realising how much money you spend and on what. For
some of us, we spend too much money on take-out and fast foods and need to cut
costs otherwise we will get into deep financial trouble, which can cause you
sleepless nights and a lot of stress. Sipho may end up taking loans that he
cannot afford to pay back and will end up in even bigger trouble. However, if
we relook at his budget there are certain places where he can reduce his
expenses to break even. As an example if Sipho removes the take out money and
reduces his airtime to R100, he will be able to pay all his accounts. Where
can you cut down so that you can pay all your accounts and have some money left
over to save?
4) If you can’t
afford to pay the minimum instalments, make arrangements.
You have written a list of the accounts that you have, as well as the
total amount outstanding on each account. Now take it a step further and write
down the minimum monthly instalment amount that you need to pay each month. Refer
to the example below.
Account name Total owed Minimum Instalment
Lewise furniture Store R 5 500 R 450
Edwards clothing R 3 500 R 350
In point no. 3 we learned how to draw up a budget. If you find that you
cannot pay the minimum instalment on the account, you need to go to the store
and try and arrange a lower monthly payment and reduce the interest on the
account. Remember that you cannot buy on credit again until you have paid the
account up in full. If you do not make arrangements with the relevant store, they may place
a garnishing order on your salary. This means, if you do not pay your accounts
the store will first be paid by your work before you even get your salary into
your bank account. For many, they may not even see their salary after their
accounts have been paid.
5) Try and buy everyday
items like groceries, cash.
For many of us, January comes too soon after the holiday and some of you
may have spent more money than you earn. You get back to work in January and
you need to buy school clothes, school shoes, stationary and groceries. Now
that you have learnt to draw up a budget in point 3, try and pay everyday costs
in cash. This way you won’t bury yourself deeper into the debt.
6) Know the
difference between wants and needs
In this day and age the younger generation have forgotten the difference
between needs and wants. Nowadays, fizzy drinks instead of water are a need.
Food, water, shelter and education are basic needs. We need to keep these needs
in mind when making luxury purchases. Ask yourself, “Do I need this item right
now, or can I save for it and buy it cash?”
7) Save for the
items that you want
The above point touched on the difference between needs and wants.
However, no one said that you cannot buy luxury items or name brand jeans. If
you want new pair of brand name jeans, a new lounge suit or a new outfit, why
not save for the items you want and buy those cash.
8) Reduce debt and
By now, you know who you owe, what you owe and have even learned how to
draw up a budget. The golden rule is to spend less than you earn and reduce
debt. But why? Life is unpredictable and
unplanned costs pop up every now and then and most of us are unprepared for
these costs; like a flat tire, or e-tolls, extra mural activities or an
unplanned trip to attend a family funeral. By following the steps above, you
are one step closer to being debt –free.
9) Pay extra
Did you know that if you have a little extra money in your wallet each
month that you can pay extra on some of your accounts and pay them off faster?
This is great news. It means that the term that you have to pay for the items
is reduced and you pay less interest in the long run. Remember even R50 makes a
10) Tackle debt step by step
and do not give up
Overcoming debt takes
a lot of patience, self-sacrifice and mental resistance. Debt can make a person
depressed. If you are fortunate not to be in debt as yet, count yourself
fortunate but this does not mean that you should not learn how to budget your
For those who have
realised the harsh reality of over indebtedness, tackle debt one step at a
time. Just don’t give up!
By Alicia Pillai
Web Content Specialist
Consumer Education Department