We cannot escape debt. The finance world thrives on it. But while needed, debt can very easily spiral out of control. We all have dreams of hitting it big time with a massive bitcoin payout. But being in debt is never ideal, and should be dealt with first before considering investing.
This text has been put together with help from Zonotho. Zonotho are a social platform that connects people with financial experts to democratise access to high-quality personal finance information.
Over indebtedness is when your income cannot sustain your expenses. This is characterised by four elements: loans, credit,arrears and a huge overdraft.
Loans and credit
Your lending is out of control when you need to pay one loan with the next every month-end. Your loans and credit are in arrears with missed payment dates and ever increasing interest charges. You can only sustain yourself with a huge overdraft. This is particularly bad as you are literally one pay cheque away from it all crashing down on you. This leads us to the worst and final element; stress. You are panicked and anxious constantly because your debt is out of control. These are the tell-tale signs that you need to intervene and address your debt to maintain a literal healthy financial life.
It is easier said than done to just say you are going to pay your debts, and voila all fixed up. You need a budget. I know it’s scary, but all those five rands and 20 rands here and there add up. I know the pull to keep up with the Kumars, Khumalos and Jones’s is real – but is it worth it? That R25 iced coffee five days a week = R125 x 4 = R500 a month. I look at my friend who quit smoking two years ago; he used to spend R1120.00 a month on cigarettes. Had he saved that for a year it would have been over R12000 in savings.
It is also necessary to remember South Africa’s unemployment rate is at its highest. Salaries and wages should also be increased regularly. Saving cannot be encouraged without acknowledging these real world issues folks face.
Pay more on your minimum payments where you can.
One of the fundamental ways to combat debt is to not miss a payment, even when you are not able to pay a bit more. Keep up the payments till you get to a point where you can pay more.
The first and fundamental step to stress-free finance is eradicating debt. It is like carrying rocks in a backpack while trying to hike uphill. It will constantly drag you down. Having a clean slate will give a clearer indication of what you can afford, and make it easier.
Thanks to Zonotho for the help in putting this together.