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We need money for food, medication, electricity, transport, clothing, accommodation and many other necessities. In these trying economic times these, one may find it difficult to balance the budget. When this happens, people are often left with little option but to borrow from a credit provider and as a result find themselves more indebted. No matter the reasons for such indebtedness, the bottom line is that debt can become a downward spiral which becomes very difficult to escape from and the consequences may be severe.
But all is not lost, if you stuck in the debt spiral and would like to get out of it, here are some tips:
Once people are indebted, there is a tendency to take more credit in order to finance their lifestyle. Many people have a tendency of “borrowing from Peter in order to pay Paul”. This only serves to get deeper into the debt spiral. The hardest part is to stop, take stock of your situation, be realistic about your wants and needs and get a plan of action. A budget is a spending plan and is an essential part in understanding where your money is going and how to allocate your money to avoid taking unnecessary credit.
One way to avoid debt is to evaluate your income honestly, i.e. how much money you make in a month. After that you start drawing up a list of necessities you need in your house. Assessing what you can spend on necessities will prevent you from spending on things that you do not need. AVOID SPENDING MORE THAN WHAT YOU EARN!
If you have come to the realisation that you are unable to service your debts, you need to change your spending habits or patterns. This is the time for you to be able to identify what is a ‘need’ and what is a ‘want’. This will need a lot of discipline and buy in from all family members if you are serious about getting out of debt. A good tip is to have a note book where you write down all your expenses as every purchase needs to be budgeted for. Ensure you keep the slips of all your purchases, big and small, for record purposes. It may sound like a daunting exercise but it does work.
Make a payment plan for yourself that is realistic. There is no point drawing up a plan that is not practical. This plan will require you to prioritise debts in order of importance. A possible way of doing this is to pay off smaller debts first and then adding these payments to larger debts. By paying off the smaller debts you may feel you are making headway while tacking the larger debts first may make you feel overwhelmed. Another way to prioritise may be paying those debts with the highest interest first. However you prioritise, remember all your debts needs to be paid every month. Where necessary negotiate with the credit providers for an extension of the payment period.
It is good that you take the above steps seriously but it is also important that you should also consider increasing your income in one way or another. This may require that you get an extra job or have a business on the side. This can increase your chances of clearing your debts faster. Furthermore, you may have some money to save as well.
Consideration should always be given to things that could happen when you least expect them. It is important that you have some money set aside to pay for unexpected emergencies.
The Financial Services Board (FSB) is the regulator of the South African non-banking financial services sector. Its Consumer Education Department was established to “provide, promote or otherwise support financial education, awareness and confidence regarding financial products, institutions and services”. (FSB Act Nr 97 of 1990 as amended in the Financial Services Laws General Amendments Act, 2013).
For further information on the FSB Consumer Financial Education initiatives and activities please call 012 428 8109 or email: CED.Consumer@fsb.co.za
For Media enquiries call 012 428 8025 or email: Tembisa.Marele@fsb.co.za
For more information visit www.mylifemymoney.co.za
Letters can be addressed to:
Head of Department: Consumer Education
P O Box 35655
Or fax: 012 346 5651