10 Debt busting tips for 2014
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10 Debt busting tips for 2014

   1​0 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. (Source: http://www.moneyweb.co.za/moneyweb-financial/no-end-to-debt-troubles)   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 owe   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 budget   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.   Income   Monthly Salary R 3 000 Less Expenses   Rent R   800 Transport R   500 Food R   900 School fees R    50 Edwards clothing account R  200 Lewi se furniture account R  250 Funeral cover R  200 Take out/fast food R  100 Airtime R  250 Total Expenses R 3 250 Income less Expenses = Surplus or deficit   R 3 000 – R 3 250 = - R  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 increase income   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 huge difference.          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 finances.       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          ​​​​​​​​​