Simple debt guide

Is your debt a problem? Do you worry about whether you can meet your obligations? Melissa America provides tips on how to deal with your debt head on.

The best way to tell if your debt is a problem is to complete a comprehensive budget. Once you subtract all you monthly expenses from your income, you will get to the amount you can afford to make your debt repayments. If your debt repayments are higher than what you have available, then you are living above your means and it is time to re-evaluate your lifestyle.

Remember that there are two basic forms of debt: good debt and bad debt. Good debt is when you take on debt to buy an asset. This asset could either be a home that you live in, or an asset which you bought to generate an income, such as a business or a property or even a car if you need one to get to work and earn an income on. Bad debt is debt that is used to finance your lifestyle. Examples of this would be borrowing on credit cards, store cards or personal loans.

How do I deal with my debt?

Make a list of all your debt obligations, the amount you owe, the interest rate and the fees and charges on those accounts. Concentrate on paying off your most expensive debt first (the debt with the highest interest rate), while still maintaining minimum repayments to the least expensive debts. It is vital that you set yourself clear targets of which debts you will pay off by when. Once you have paid off a particular debt, have a (cheap) little  celebration. You will feel a big sense of achievement every time you get rid of a debt.

I still can’t manage, where do I go for help?

If you are unable to meet your monthly repayments, then it is important to seek help from a professional debt management firm. There are a few around, but you need to be careful about who you choose. Justmoney is a good source of advice on which companies to turn to for assistance.

The debt management firm will be able to give you some free impartial advice as to your situation and recommend the best solution for you. Many debt management businesses have mandates from credit providers to extend the terms of your debt and reduce interest rates down to zero  to help get you out of debt within five years.

South Africa has a world-class debt management process, brought in by the National Credit Act in June 2007. Many of the large debt management firms have close relationships with the credit providers. This enables them to suspend legal action being taken against you to give them the time required to find an acceptable solution for both parties.

And remember, there are always ways to save money, no matter where it’s being spent. If you can’t manage your debts, you need to shift your lifestyle. Moneybags is focused on finding pain-free ways to save. Sign up to our weekly newsletter for the latest deals, savings and guides, and start managing your money to make it work for you.