Debt Restruct

The Top Three Ways to Get Out of Debt

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While South Africa’s robust financial system has been a key driver in its economic growth, it has also led to increased credit access. This has seen debt levels increase tenfold, with an average South African household reportedly spending up to 75% of its income on debt repayment. On the bright side, there are plenty of ways for any determined individual to get out of debt, and this article will explore the top three.


Mistakes People Make When Trying to Get Out of Debt 

Want to learn how to get out of debt in South Africa? Avoid the following mistakes that people make when trying to achieve the same: 


Failing to Address the Real Cause of Debt 

South Africans go into debt for different reasons. Unfortunately, most of them never address the actual cause. As a result, any action plan they take is likely to fail as they may be unknowingly repeating the same poor financial habits.


Repaying Debt Minimums

Most people in debt often make small, minimum debt repayments to multiple creditors. Although they’ll eventually clear their debts, this approach is slow, making the chances of giving up repayment relatively high since they don’t notice any real progress. If you’re looking to learn how to get out of debt fast, consider making large payments to individual creditors. This will see you repay each debt more quickly, and eventually, you’ll have fewer creditors on your case.


Failing to Ask for Help

It’s advisable for anyone seeking to get out of debt to get professional advice from finance experts. Unfortunately, most South Africans prefer dealing with their money and debt problems silently. While there’s nothing wrong with keeping money matters private, failing to ask for help only worsens the situation since consumers either go into repayment without a proper plan or repeat the same patterns that saw them get into debt. 



The Three Best Ways to Get Out of Debt 

Here’s how to get out of debt on a low income: 


1. Using a Debt Repayment Method 

Getting into debt repayment without a plan is one of the common mistakes people make when servicing their loans and credit card debts. You can avoid it by maximizing on proven debt repayment methods such as:


The Debt Snowball 

With the debt snowball strategy, you first pay off minimums to all creditors and then channel all the extra money you can afford towards the account with the smallest amount owed. This method is often effective because it’s easier for most people to deal with small debts than large, high-interest debts. The small repayment successes you enjoy also motivate you to keep going. 


Debt Avalanche 

Also known as debt stacking, the avalanche method eliminates debts with the highest interest rate to the smallest. Debtors first pay the minimum on their outstanding debt accounts and then put all extra money towards their most significant balances. As a result, you pay less in interest, free up money to service the smaller balances, and enjoy the satisfaction of knowing your biggest debts are out of the way, and you only have smaller, manageable ones to handle.

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2. Applying for Debt Counselling 

Commonly referred to as debt review, Debt counselling is a debt management program introduced by the National Credit Act in 2007. The initiative aims to help South Africans struggling with debt reorganize, clear their outstanding accounts, build better credit, and eventually regain control over their finances.

When you seek debt counselling, a professional debt counsellor assigned to you will review your finances thoroughly, and then offer personalized recommendations on debt repayment, how to repay your debt more efficiently, and guide you through the debt counselling process.

Your counsellor will also negotiate with your creditors for better repayment terms, and notify credit bureaus of your debt review status and the subsequent removal thereof after you clear your debts.

Debt counselling is an excellent debt management strategy since it gets you manageable repayment terms, offers legal protection from creditors, and presents a regimented path towards debt freedom.



3. Refinance Debt with a Debt Consolidation Loan 

A debt consolidation loan lets you roll multiple high-interest loans into a single, large loan which may have more favourable repayment terms. 

The new loan might have either a low interest or lower monthly repayment terms depending on the creditor. It makes debt repayment a tad easier since you end up with one manageable financial commitment.

Note, however, the longer the repayment schedule, the more you pay in the long run, so ensure you do the math first before signing up for a debt consolidation loan. 



Preparing Yourself to Get Out of Debt with One of these Strategies 

Here’s how to get out of debt when you have no money with one of these strategies:


The Debt Snowball Strategy

First, list all outstanding balances from the smallest to the largest and then pay off your minimums. Finally, create a repayment plan where all the extra money you can afford goes to the smallest account balance you owe. 


The Debt Avalanche Strategy 

Start by listing all outstanding debts from one with the highest interest rate to the lowest. Pay your minimums, and create a repayment plan where you channel all extra funds you earn to the high-interest debt. 


The Debt Counselling Strategy

Debt counselling is the most efficient repayment strategy. 

Preparing for debt repayment using this strategy boils down to finding a reputable agency. Ensure the agency is registered with the National Credit Regulator and applying to see if you qualify to start the process.


The Debt Consolidation Strategy 

Debt consolidation loans are often offered based on the creditworthiness and income of the applicant. Find out whether you qualify first, and if yes, work on finding a reputable creditor. Consider whether this strategy is suitable for you before. Using a debt consolidation loan should only be considered if you’re extremely disciplined and can easily afford the repayment amount.

For most, opting for the debt counselling strategy is a more secure solution with a guaranteed path toward debt-freedom.



Getting Out of Debt in South Africa 

Debts stress you and impede your life goals. Learning how to get out of debt is thus critical for any South African seeking progress. With proper guidance, one of these three debt repayment strategies can help you become debt-free. 

Interested in learning more about debt counselling as a solution to growing debt?  Get in touch with us today.

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Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.

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