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News Room

Real-Life Case Study On How To Get Out of Debt

Melissa Cohen
2016-09-14
How do you get out of debt and make better financial decisions? We look at a case study on bad financial decisions and how to right them.
Is it just us, or is there a connection between a budding romance and bad financial decisions? What is it about love that clouds our judgement? It’s almost as if, no matter what we do during the so-called honeymoon phase of a relationship, we just expect everything to turn out fine in the end. Because, love conquers all, right? No. Not right. This is a cautionary tale. About debt. It all started when Kelly* started dating her Brian*. They met at work and it was a whirlwind romance. Breakfast dates at the cafeteria, lunch dates at Canal Walk, and dinner dates all around Cape Town. Brian, eager to impress his new girlfriend, usually picks up the bill. And Kelly does some impressing of her own, buying Brian a shirt, then a jacket, then some shoes, and charging it all to her Foschini account. After all, he was the one. debt review

How Easy It Is To Get Into Debt

They never really spoke about money, but marriage was a good step for them financially. They could combine finances. Within a few months they got married, spending their savings and charging the rest to their credit cards. But what they ended up doing was combining debt.
“We realised the situation we were in shortly after I fell pregnant with our first child,” says Kelly, “the gynaecologist at the hospital only took cash up front and we had to claim it back from our medical aid. We started struggling to get by with our high credit card instalments, plus the new costs of preparing for our child. A collections agent was calling us about our missed car payments. It was stressful.”
Brian considered debt review, but they wanted to buy a house sometime in the near future. He took a personal loan to consolidate his debt instead. But, unlike a debt consolidation loan (or debt review) where your creditors are paid directly, a personal loan pays the cash into your account. Brian, who was an emotional spender, didn’t use the entire loan to pay off his debt.
DID YOU KNOW? Debt Review takes into consideration ALL of the your accounts and establishes a holistic strategy to get the you out of debt! CLICK BELOW to be contacted by a professional debt counsellor. unnamed-3

Getting Serious About Bad Debt

Now more over-indebted than they were before, Kelly decided to significantly tighten their belts. “I decided no more credit until we get things under control,” says Kelly, who reports they even had an account at the local butcher. She decided to start selling things they didn’t need on Gumtree and at Cash Crusaders to make some cash available and cut up all their credit cards and retail cards. “We sold our wooden bar, a coffee table, a slow cooker – we sold a lot of stuff.” She started working from home after her maternity leave to save money on daycare. They also explained to family and friends that they were trying to get back on their feet financially so they were unable to buy any birthday or Christmas presents.
“The first family Christmas at my parents’ house was really awkward, everyone knew about our situation. But they understood, and even bought us gifts. It was a really humbling lesson about managing our finances better and being honest about what we could afford. When Brian got his bonus, or did particularly well at work and got paid extra commission, we paid it straight into our debt. I don’t think we went to the movies for almost two years,” admits Kelly.
Now, two years later, they’ve paid off both their credit cards and their retail cards and have just bought a house. Kelly says the biggest lesson she’s taken from this experience is always counting the cost (plus interest!) of taking anything on credit. Her biggest regret? “Letting Brian take that personal loan instead of a debt consolidation loan,” she says, and laughs.

Tips To Stay Get Out Of Debt

To sum up Kelly and Brian's experience, the following five tips can help you get out of debt:
  1. Sell items you no longer need
  2. Cut down on luxuries / unnecessary expenses
  3. Get a third / fourth / fifth income
  4. Pay any extra income straight into your debt
  5. Apply for Debt Review to have your debt and creditors managed for you
*Not their real names.
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