How To Get Out Of Debt
The Debt Review repayment process is much like the snowball effect. Here we will explain how to pay off debt faster by using this technique.
The Debt Snowball Effect
The way that Debt Counselling works is much like the debt snowball effect. Smaller accounts or accounts with higher interest are settled first. When accounts are settled, the instalment of the settled account goes toward another account. The monthly payment amount stays the same until all debt is settled.
Pay Off Debt Faster
Debt Counselling has been around for years now, helping struggling consumers overcome the nightmares that debt can cause. What we have found is that having a strict budget and sticking to it is the first step to a debt free future.
Having a budget and keeping track of where your money goes is all good and well, but how can this knowledge be used to get out of debt?
By analyzing your spending you will find that somewhere you will be able to save money. It might be by using a bit less data, cutting back on fast foods or just changing your bank account, but somewhere there will be areas where you can save, even if its R500 per month.
Will R500 Be Enough Though?
When you have credit cards, personal loans and store cards, it may feel like R500 would have no impact on reducing your overall debt. Most of us feel like burying our heads in the sand and use the R500 on retail therapy. The truth is that a mere R500 has more power than you think! The snowball effect is a powerful tool in the process of becoming debt free. In the Debt Counselling industry, we also use a type of the snowball effect.
It’s a simple concept of not paying more towards all your debt but rather paying off the smaller debt as fast as possible. Not only is it a psychological win to settle a debt, but this also frees up money from the settled debt to pay towards the next debt. When you settle the second debt you will have the payments of the first two accounts plus the extra R500 from the budget savings. You can now start to pay of the bigger debts faster. Before you know it, the R500 you paid extra saved you thousands on interest and fees.
Debt Settlement Plan
Here is an example of how to settle R30 000 debt within two years.
In this example a consumer has the following accounts:
- Edgars account with R2000 outstanding and a minimum repayment of R200 monthly
- Game account with R3000 outstanding and a minimum payment of R300 monthly
- FNB credit card with R10 000 outstanding and a minimum payment of R300 monthly
- Discovery credit card with R15 000 outstanding and a minimum payment of R500 monthly
Month 1 to 3
Increase the R200 payment of the Edgars account to R700 by adding the extra R500 you saved on your budget.
The account will be paid off within three months. Close the account immediately.
Month 4 to 6
Now use the R700 that you were paying towards the Edgars account and increase the payment of the Game account.
Three payments of R1000 will settle the Game account. Close it immediately. Do not fall into temptation to use the account, this will derail the debt settlement plan.
Month 7 to 14
Now that you have closed the store accounts it is time to focus on the credit card.
Increase the credit card payment to R1300 by adding the R1000 you paid to the Game account. As a result the credit card will be paid off within 9 months. You should consider closing the credit card or reduce the limit to R500 if you require the convenience. Be sure to transfer money to the credit card account every month.
Month 15 to 23
You will now use the R1300 from the FNB credit card and add that to the branded Discovery card, bringing the amount to R1800. The Discovery Card will be paid off in just 9 months!
If you haven’t taken out any new credit, you are now debt free. This example shows you that by budgeting for an extra R500 per month you can settle your debt much faster.
The above steps can work with any amount, as long as you stick to the guidelines.
Should you not be able to cut your expenses to pay extra towards debt, or if you are struggling to stick to the above plan or struggling to pay your debt every month, considering Debt Counselling might not be a bad idea.
Debt Counselling will reduce your monthly instalments and interest rates, which in itself will also save you some money. At Sandton Debt Counselling we will help you setting up a budget and guide you towards a debt free life!
For questions, call us on 087 550 11 22 or complete the “Call Me Back” form on this page.
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Can You Apply for Debt Review if You’ve Immigrated? Sandton Debt Counselling can assist with debt review for those who have immigrated to South Africa.
Can Foreigners Apply for Debt Review in South Africa? Our country has a diverse population, and of our 60-odd million residents, a fair number comprises