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Feeling more month at the end of your money now that the Festive Season is behind us? Relieve your debt woes with these 3 steps.
With many people returning to work this week, we may be treading very lightly on our current expenses as we recover from our festive debt.
The festive season sets a perfect stage for debt and overspending with its temptations of frequent eating out, social gatherings and, of course, the Christmas presents you need to buy.
With anything from a week to a month away from work and a routine, we enter a sort of utopia where money is simply a means to entertain ourselves or splash out on things that will provide a thrill. It may be that ridiculously large flatscreen SmartTV or a fridge that can sing to you while you decide what to eat. It's the place of milk and honey, right?
Here are the three steps to getting rid of debt:
How To Get Out Of Festive Debt
Financial planner, Kirsty Scully from Core Wealth Managers breaks down debt relief in three steps to make sure you not only rid yourself of Christmas debt, but debt in general."First, repeat after me, 'If you spend more than what your income is, it is DEBT'.One of the biggest 'dangling little carrots' that retailers lay out for us is the ability to get into debt. Say for example, you have seen that singing fridge we mentioned earlier, but it is R12 000 and out of your price range. It is however, also available on credit for a period of 36 months. The new figure put in front of you is now a mere R456 per month, making your total paid back R15 960.
Scully comments, "You are being absolutely ripped off"." "Don't get me wrong, I am not against credit cards at all, I have one myself. It's the way credit cards are used. If you are using it every month and not paying it off, then you have a problem."
Here are the three steps to getting rid of debt:
Step 1
Look at all your debt (credit cards, bank loans) and rank in terms of the highest to lowest interest rate.Step 2
Pay the minimum payment on all accounts, but try to pay a little (or a lot) more on the debt with the highest interest rate in order to complete that payment as soon as possible.CLICK BELOW to read more tips and advice in our article on the real reason you suck at money management.
Step 3
Once your highest interest account has been paid off, start with the next highest interest amount to be paid. You now have the funds from the previous debt paid off, as well as the money you are already using to pay off that account. This payment method stars to trickle down into the rest of your debt and is likely to pick up speed as you start to eliminate all money owed.What About Unforeseen Money Expenses?
This is something we see frequently. We are paying off our expenses diligently when, all of a sudden, we need a lot of money in a short space of time. Such emergencies could be a flat tyre, a broken fridge, or another financial emergency that needs to be fixed immediately."One of the ways around that," says Scully, "is to have an emergency fund, where you have money you can access, and it isn't expensive to pay back."And, how does Scully recommend avoiding debt altogether? "It's all about budgeting," she says.
CLICK BELOW to read our guide on how to stick to a budget and save money.