Instead of letting debt take control of their lives, people should take steps to pay off their debts by paying off one debt at a time. Picture: File
For many people, the reality of tough financial times is that they have take on more debt to make ends meet.
Instead of letting debt take control of their lives, people should take steps to pay off their debts by paying off one debt at a time.
Here are two methods that people can use to pay off their debts:
Snowball method
The snowball method is when people pay off the smallest debt first.
According to Wonga, the first step to paying off your debts using the snowball method is to list all your debts from the smallest amount to the largest. Then commit to and pay off minimum payment on every debt.
Avalanche method
The avalanche method is when people pay off the debt with the highest interest rate such as personal loans and credit cards first.
Janine Horn, financial adviser at Momentum, said that although paying off these debts may take a while, it is possible if people to take intentional steps to do pay off their debts.
While you are paying off your debts you can also take steps to stop yourself from falling deeper into the debt trap.
Here are tips to help you avoid or come out of the debt trap:
Budget
Have a budget that takes care of your expenses and allows you to tame your desires by living within your means.
List all of your expenses as well as your monthly deductions and add them up against your income. If the value of the expenses is more than your income you need to take steps to reduce your expenses.
The extra money that you save from reducing your expenses can be put towards paying off your debt.
Have an emergency fund
Start saving up to at least 3 to 6 months of your monthly salary to deal with unplanned emergency expenses instead of taking on extra debt to pay off unforeseen expenses.
Speak to your financial adviser
A financial adviser can help people craft a financial plan to take control of their finances. Make sure you ask your adviser about a life cover, disability cover and long-term investments.
Talk to your creditors
John Manyike, head of financial education at Old Mutual, said that people should speak to their creditors as soon as they start struggling with paying their instalments to negotiate payment terms.
Start a side hustle
If your debt is more than your income, then you need to explore multiple streams of income, including starting your own side hustle.
Janine Jacobs, head of Financial Reporting at Glacier by Sanlam, said: “Creating another income stream requires sacrifice and hard work and needs to be managed so that it doesn’t impact negatively on your active income or create a conflict of interest.”
IOL Business
Related Topics: